Document
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number: 001-36781
 
Juno Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
46-3656275
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
400 Dexter Avenue North, Suite 1200
Seattle, WA
 
98109
(Address of principal executive offices)
 
(Zip Code)
(206) 582-1600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common stock, par value $0.0001 per share
 
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
Accelerated filer
 
o
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
Smaller reporting company
 
o
Emerging growth company
 
o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).    Yes  o    No  x
The number of shares outstanding of the registrant’s common stock as of October 30, 2017 was 114,172,897.


Table of Contents

TABLE OF CONTENTS
 
PART I
 
 
 
Page
 
 
 
Item 1.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
PART II
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

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Juno Therapeutics, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
 
September 30, 2017
 
December 31, 2016
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
449,837

 
$
187,891

Marketable securities
477,697

 
544,684

Accounts receivable
34,335

 
13,286

Prepaid expenses and other current assets
10,588

 
26,471

Total current assets
972,457

 
772,332

Property and equipment, net
131,623

 
81,734

Long-term marketable securities
128,195

 
189,706

Goodwill
221,306

 
221,306

Intangible assets, net
77,162

 
77,986

Other assets
3,748

 
6,400

Total assets
$
1,534,491

 
$
1,349,464

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
8,318

 
$
4,415

Accrued liabilities and other current liabilities
80,870

 
36,822

Success payment liabilities
84,603

 
22,786

Contingent consideration
2,166

 
7,605

Deferred revenue
27,947

 
43,264

Total current liabilities
203,904

 
114,892

Long-term debt, less current portion
10,010

 

Contingent consideration, less current portion
22,735

 
13,291

Deferred revenue, less current portion
104,022

 
120,054

Deferred tax liabilities
2,161

 
5,152

Tenant improvement allowance, deferred rent, and other long-term liabilities
43,886

 
18,374

Commitments and contingencies (Note 11)

 

Stockholders’ equity:
 
 
 
Preferred stock, $0.0001 par value; 5,000 shares authorized; 0 shares issued and outstanding

 

Common stock, $0.0001 par value, 495,000 shares authorized at September 30, 2017 and December 31, 2016; 113,445 and 103,403 shares issued and outstanding at
September 30, 2017 and December 31, 2016, respectively
12

 
11

Additional paid-in-capital
2,277,564

 
1,911,769

Accumulated other comprehensive income (loss)
2,504

 
(2,842
)
Accumulated deficit
(1,132,307
)
 
(831,237
)
Total stockholders’ equity
1,147,773

 
1,077,701

Total liabilities and stockholders’ equity
$
1,534,491

 
$
1,349,464


See accompanying notes.

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Juno Therapeutics, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Revenue
$
44,816

 
$
20,826

 
$
85,411

 
$
58,203

Operating expenses:
 
 
 
 
 
 
 
Research and development
140,272

 
60,854

 
324,288

 
206,887

General and administrative
26,347

 
18,441

 
70,689

 
51,210

Total operating expenses
166,619

 
79,295

 
394,977

 
258,097

Loss from operations
(121,803
)
 
(58,469
)
 
(309,566
)
 
(199,894
)
Other-than-temporary impairment loss

 

 

 
(5,490
)
Interest income, net
1,968

 
1,485

 
5,445

 
4,322

Other expenses, net
(83
)
 
(507
)
 
(1,187
)
 
(871
)
Loss before income taxes
(119,918
)
 
(57,491
)
 
(305,308
)
 
(201,933
)
Benefit for income taxes
1,785

 
594

 
4,238

 
9,131

Net loss
$
(118,133
)
 
$
(56,897
)
 
$
(301,070
)
 
$
(192,802
)
Net loss per share, basic and diluted
$
(1.12
)
 
$
(0.56
)
 
$
(2.88
)
 
$
(1.91
)
Weighted average common shares outstanding, basic and diluted
105,602

 
102,178

 
104,629

 
100,961


See accompanying notes.

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Juno Therapeutics, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net loss
$
(118,133
)
 
$
(56,897
)
 
$
(301,070
)
 
$
(192,802
)
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
1,210

 
263

 
3,834

 
673

Net unrealized gain (loss) on marketable securities
664

 
(239
)
 
1,512

 
(519
)
Reclassification adjustment for loss included in net loss

 

 

 
5,490

Total other comprehensive income
1,874

 
24

 
5,346

 
5,644

Comprehensive loss
$
(116,259
)
 
$
(56,873
)
 
$
(295,724
)
 
$
(187,158
)

See accompanying notes.

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Juno Therapeutics, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Nine Months Ended September 30,
 
2017
 
2016
OPERATING ACTIVITIES
 
 
 
Net loss
$
(301,070
)
 
$
(192,802
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
15,652

 
10,433

Non-cash stock-based compensation
53,265

 
42,760

Non-cash expense in connection with equity issuance

 
23,226

Deferred income taxes
(4,242
)
 
(9,114
)
Change in fair value of success payment liabilities
61,817

 
(20,758
)
Change in fair value of contingent consideration
4,005

 
(5,175
)
Other-than-temporary impairment on marketable securities

 
5,490

Other
1,286

 
948

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(21,048
)
 
(10,285
)
Prepaid expenses and other assets
17,615

 
179

Accounts payable, accrued liabilities and other liabilities
45,164

 
1,365

Deferred revenue
(31,375
)
 
26,169

Tenant improvement allowance and deferred rent
26,762

 
7,197

Net cash used in operating activities
(132,169
)
 
(120,367
)
INVESTING ACTIVITIES
 
 
 
Purchases of marketable securities and other investments
(419,087
)
 
(623,243
)
Sales and maturities of marketable securities
546,896

 
767,147

Acquisitions, net of cash acquired

 
(74,575
)
Purchase of property and equipment
(56,903
)
 
(17,795
)
Net cash provided by investing activities
70,906

 
51,534

FINANCING ACTIVITIES
 
 
 
Proceeds from long-term borrowings, net of financing costs
10,804

 

Payments of long-term debt and build-to-suit lease obligation
(92
)
 
(274
)
Proceeds from public offering of common stock, net of offering costs
272,417

 

Proceeds from issuance of common stock to strategic partner
32,783

 
47,000

Proceeds from employee stock purchase plan and exercise of stock options, net of tax withholdings
7,331

 
3,254

Repurchases of common stock

 
(10,073
)
Net cash provided by financing activities
323,243

 
39,907

Effect of exchange rate changes on cash and cash equivalents
(34
)
 
(52
)
Net increase in cash and cash equivalents
261,946

 
(28,978
)
Cash and cash equivalents at beginning of period
187,891

 
252,398

Cash and cash equivalents at end of period
$
449,837

 
$
223,420

SUPPLEMENTAL CASH FLOW INFORMATION
 
 
 
Purchases of property and equipment included in accounts payable and accrued liabilities
$
2,323

 
$
2,948

Issuance of common stock for acquisitions
$

 
$
46,914

Issuance of common stock for success payments
$

 
$
9,481

See accompanying notes.

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Juno Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements
1. Significant Accounting Policies
Organization and Basis of Presentation
Juno Therapeutics, Inc. (the "Company") was incorporated in Delaware on August 5, 2013 as FC Therapeutics, Inc., and changed its name to Juno Therapeutics, Inc. on October 23, 2013. The Company is building a fully-integrated biopharmaceutical company focused on developing innovative cellular immunotherapies for the treatment of cancer. Founded on the vision that the use of human cells as therapeutic entities will drive one of the next important phases in medicine, the Company is developing cell-based cancer immunotherapies based on its chimeric antigen receptor ("CAR") and high-affinity T cell receptor ("TCR") technologies to genetically engineer T cells to recognize and kill cancer cells.
In September 2017, the Company completed a follow-on public offering (the "September 2017 follow-on public offering") whereby the Company sold 7,015,000 shares of common stock (inclusive of 915,000 shares of common stock sold by the Company pursuant to the full exercise of the underwriters’ option to purchase additional shares) at a price to the public of $41.00 per share. The Company received aggregate net proceeds from the September 2017 follow-on public offering of $272.4 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company.
Concurrent with the closing of the September 2017 follow-on public offering, the Company closed a private placement of 758,327 shares of its common stock, at price of $41.00 per share, to a subsidiary of Celgene Corporation. The Company received aggregate proceeds from the concurrent private placement of $31.1 million.
The Company is subject to a number of risks similar to other biopharmaceutical companies in the early stage, including, but not limited to, possible failure of preclinical testing or clinical trials, the need to obtain marketing approval for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s products, protection of proprietary technology, and the need to obtain adequate additional funding. If the Company, or any commercialization partner for the Company’s product candidates, does not successfully commercialize any of the Company’s product candidates, the Company will not be able to generate product revenue or achieve profitability. As of September 30, 2017, the Company had an accumulated deficit of $1.13 billion.
The financial data as of December 31, 2016 is derived from the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 1, 2017 (the "2016 Annual Report"), and should be read in conjunction with the audited financial statements and notes thereto. The Company’s significant accounting policies are described in Note 2 to the financial statements included in the 2016 Annual Report.
These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position, results of operations and comprehensive loss and cash flows for the interim periods. The results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results expected for the full fiscal year or any other interim period.
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from such estimates. See Note 2 to the audited financial statements included in the 2016 Annual Report for additional discussion of these estimates and assumptions.
The Company utilizes significant estimates and assumptions in determining the estimated success payment and contingent consideration liabilities and associated expense or gain at each balance sheet date. A small change in the Company’s stock price may have a relatively large change in the estimated fair value of the success payment liability and associated expense or gain. Changes in the probabilities and estimated timing of milestones used in the calculation of the contingent consideration liability may have a relatively large impact on the resulting liability and associated expense or gain.

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Recent Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, Compensation—Stock Compensation (Topic 718). The guidance was effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The Company adopted this standard on January 1, 2017. The guidance required the Company to recognize all excess tax benefits previously unrecognized, along with any valuation allowance, on a modified retrospective basis as a cumulative-effect adjustment to accumulated deficit as of the date of adoption. As of January 1, 2017, the Company's deferred tax asset for net operating losses increased by $7.1 million but was offset by a full valuation allowance, so there was no impact to accumulated deficit on the condensed consolidated balance sheets. Additionally, the guidance required the Company to make a policy election to either estimate share-based payment forfeitures or recognize them as they occur, and apply the change from the policy election on a modified retrospective basis as a cumulative-effect adjustment to accumulated deficit as of the date of adoption. The Company elected to recognize forfeitures as they occur. Prior to the adoption of this guidance, the estimate for forfeitures was immaterial and as such there was no material impact to accumulated deficit on the condensed consolidated balance sheets upon adoption.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new guidance requires lessees to recognize the assets and liabilities arising from leases on the balance sheet and additional qualitative and quantitative disclosures will be required. The amendment is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The Company plans to adopt this standard on January 1, 2019 and is evaluating the impact of adopting the new accounting guidance on its consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance primarily affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. This guidance is effective for annual and interim periods beginning after December 15, 2017, and with early adoption permitted for certain provisions of the guidance. The Company will adopt this standard on January 1, 2018 and the adoption of this guidance is not expected to have a material effect on its consolidated financial statements.
In 2014, the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers (Topic 606), amended by ASU No. 2015-14. This new standard will replace all current GAAP guidance on this topic and establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. This guidance can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In 2015, the FASB voted to defer the effective date to reporting periods beginning after December 15, 2017, with early adoption permitted. The Company plans to adopt this standard on January 1, 2018, using the modified retrospective method. Under the modified retrospective method, the Company will recognize the cumulative effect of the adoption of ASU 2014-09 as an adjustment to accumulated deficit and deferred revenue on the initial date of application. As of September 30, 2017, the majority of the Company's revenue is generated from upfront license payments and reimbursement revenue under its collaboration arrangement with Celgene Corporation and its wholly owned subsidiary Celgene Switzerland LLC (together, "Celgene") and license and milestone payments associated with the Novartis sublicense agreement. Based on its review of current contracts, the Company expects the implementation of ASU No. 2014-09 to result in a deferral of revenue for a portion of certain milestone payments associated with the Novartis sublicense.
2. Collaboration and License Agreements
See Note 5 of the financial statements included in the 2016 Annual Report for additional information related to the Company's collaboration and license agreements.
Celgene
The Company is party to a Master Research and Collaboration Agreement ("Celgene Collaboration Agreement") with Celgene pursuant to which the Company and Celgene agreed to collaborate on researching, developing, and commercializing novel cellular therapy product candidates and other immuno-oncology and immunology therapeutics, including, in particular, CAR and TCR product candidates. In April 2016, Celgene exercised its opt-in right to develop and commercialize product candidates from the Company’s CD19 program outside North America and China. As a result, the Company and Celgene entered into a license agreement (the "Celgene CD19 License") pursuant to which Celgene received an exclusive, royalty-bearing license to develop and commercialize therapeutic CAR product candidates from the Company’s CD19 program in all territories outside of North America and China. The Company is also party to a Share Purchase Agreement (the "Celgene Share Purchase Agreement") with Celgene.

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In March 2017, Celgene exercised its annual right to purchase additional shares of the Company’s common stock to "top-up" its ownership interest in the Company. The top-up right that was triggered by the filing of the Company’s 2016 Annual Report permitted Celgene to top-up its ownership stake in the Company to 9.76%. Celgene purchased 75,568 shares at a price of $22.39 per share, for an aggregate purchase price of $1.7 million, to top-up its ownership stake of the Company's common stock to the permitted amount of 9.76%. The top-up right that will be triggered by the filing of the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2017 will again permit Celgene to top-up its ownership stake of the Company’s common stock to 9.76%.
In September 2017, concurrent with the closing of the September 2017 follow-on public offering, the Company closed a private placement of 758,327 shares of its common stock, at a price of $41.00 per share, with Celgene for an aggregate purchase price of $31.1 million.
The Company recognized revenue in connection with the Celgene Collaboration Agreement and the Celgene CD19 License of $19.7 million and $20.7 million for the three months ended September 30, 2017 and 2016, respectively, and $60.0 million and $43.4 million for the nine months ended September 30, 2017 and 2016, respectively.
Fred Hutchinson Cancer Research Center
In October 2013, the Company entered into a collaboration agreement with the Fred Hutchinson Cancer Research Center ("FHCRC") focused on research and development of cancer immunotherapy products and a license agreement pertaining to certain patent rights. The Company also granted FHCRC rights to certain share-based success payments. In December 2015, the Company entered into an agreement with FHCRC to support the establishment of a clinical immunotherapy trial unit.
Excluding the expense or gain related to success payment obligations, the Company recognized $3.6 million and $3.2 million of research and development expenses in connection with its collaboration and funding agreements with FHCRC for the three months ended September 30, 2017 and 2016, respectively, and $11.3 million and $11.9 million for the nine months ended September 30, 2017 and 2016, respectively.
The estimated fair value of the total success payment obligation to FHCRC, after giving effect to the success payments achieved and paid in December 2015, was approximately $69.0 million and $22.9 million as of September 30, 2017 and December 31, 2016, respectively. With respect to the FHCRC success payment obligations, the Company recognized an expense of $23.0 million compared to a gain of $10.5 million in the three months ended September 30, 2017 and 2016, respectively. The Company recognized an expense of $37.8 million compared to a gain of $13.3 million in the nine months ended September 30, 2017 and 2016, respectively. The expense and gain are recorded in research and development expense in the condensed consolidated statements of operations, and represent the change in the FHCRC success payment liability during such periods and the respective months of accrued expenses. The FHCRC success payment liabilities on the condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016 were $51.0 million and $13.3 million, respectively.
The Company’s liability for share-based success payments under the FHCRC collaboration is carried at fair value and recognized as expense over the term of the six-year collaboration agreement. To determine the estimated fair value of the success payment liability, the Company uses a Monte Carlo simulation methodology which models the future movement of stock prices based on several key variables. The following variables were incorporated in the calculation of the estimated fair value of the success payment liability as of the following balance sheet dates:
Assumptions
September 30, 2017
 
December 31, 2016
Fair value of common stock
$
44.86

 
$
18.85

Risk free interest rate
1.78% - 2.16%

 
1.88% - 2.30%

Expected volatility
75
%
 
75
%
Expected term (years)
4.04 - 7.04

 
4.79 - 7.79

The computation of expected volatility was estimated using a combination of available information about the historical volatility of stocks of similar publicly-traded companies for a period matching the expected term assumption and the Company’s historical and implied volatility. The risk free interest rate and expected term assumptions depend on the estimated timing of U.S. Food & Drug Administration ("FDA") approval. In addition, the Company incorporated the estimated number and timing of valuation measurement dates in the calculation of the success payment liability.

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Memorial Sloan Kettering Cancer Center
In November 2013, the Company entered into a sponsored research agreement with Memorial Sloan Kettering Cancer Center ("MSK") focused on research and development relating to CAR T cell technology and a license agreement pertaining to certain patent rights and intellectual property rights related to certain know-how. The Company also granted MSK rights to certain share-based success payments. The Company is also party to clinical study agreements with MSK.
Excluding the expense or gain related to success payment obligations, the Company recognized $1.6 million and $0.9 million of research and development expenses in connection with its research and clinical agreements with MSK for the three months ended September 30, 2017 and 2016, respectively, and $5.1 million and $1.7 million for the nine months ended September 30, 2017 and 2016, respectively.
The estimated fair value of the total success payment obligation to MSK, after giving effect to the success payment achieved in December 2015 and paid in March 2016, was approximately $41.6 million and $14.1 million as of September 30, 2017 and December 31, 2016, respectively. With respect to the MSK success payment obligations, the Company recognized an expense of $14.2 million compared to a gain of $7.2 million in the three months ended September 30, 2017 and 2016, respectively. The Company recognized an expense of $24.0 million compared to a gain of $7.5 million in the nine months ended September 30, 2017 and 2016, respectively. The expense and gain are recorded in research and development expense in the condensed consolidated statements of operations, and represent the change in the MSK success payment liability during such periods and the respective months of accrued expense. The MSK success payment liabilities on the condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016 were $33.6 million and $9.5 million, respectively.
The Company’s liability for share-based success payments under the MSK collaboration is carried at fair value and recognized as expense over the term of the five-year collaboration agreement. To determine the estimated fair value of the success payment liability, the Company uses a Monte Carlo simulation methodology which models the future movement of stock prices based on several key variables. The following variables were incorporated in the calculation of the estimated fair value of the success payment liability as of the following balance sheet dates:
Assumptions
September 30, 2017
 
December 31, 2016
Fair value of common stock
$
44.86

 
$
18.85

Risk free interest rate
1.79% – 2.17%

 
1.90% – 2.31%

Expected volatility
75
%
 
75
%
Expected term (years)
4.14 – 7.14

 
4.89 – 7.89

The computation of expected volatility was estimated using a combination of available information about the historical volatility of stocks of similar publicly-traded companies for a period matching the expected term assumption and the Company’s historical and implied volatility. The risk free interest rate and expected term assumptions depend on the estimated timing of FDA approval. In addition, the Company incorporated the estimated number and timing of valuation measurement dates in the calculation of the success payment liability.
St. Jude Children’s Research Hospital/Novartis
The Company is party to a license agreement with St. Jude ("St. Jude License Agreement") pertaining to certain patent rights owned by St. Jude. In connection with the April 2015 settlement of Trustees of the University of Pennsylvania v. St. Jude Children’s Research Hospital, Civil Action No. 2:13-cv-01502-SD (E.D. Penn.), in which the Company was a party (the "Penn Litigation"), the Company entered into a sublicense agreement (the "Penn/Novartis Sublicense Agreement") with the Trustees of the University of Pennsylvania ("Penn") and an affiliate of Novartis Pharmaceuticals Corporation ("Novartis") pursuant to which the Company granted to Novartis a sublicense pertaining to patent rights licensed to the Company under the St. Jude License Agreement.
In August 2017, a regulatory milestone was met under both the Penn/Novartis Sublicense Agreement and the St. Jude License Agreement, pursuant to which the Company recognized milestone revenue of $25.0 million from Novartis, and a corresponding research and development expense to St. Jude of $6.8 million. Additionally, we are obligated to repay Novartis 50% of a milestone payment amount where Novartis achieves a milestone and we subsequently achieve the same milestone. In September 2017, we achieved two clinical milestones that had previously been achieved by Novartis and recorded research and development expense of $7.1 million associated with the milestone repayment owed to Novartis.

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3. Cash Equivalents and Marketable Securities
All marketable securities are available for use and therefore classified as available-for-sale. The following tables summarize the estimated fair value of cash equivalents and marketable securities and gross unrealized holding gains and losses (in thousands):
 
September 30, 2017
 
Amortized Cost
 
Gross Unrealized Holding Gains
 
Gross Unrealized Holding Losses
 
Estimated Fair Value
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
318,402

 
$

 
$

 
$
318,402

U.S. government and agency securities
98,692

 
2

 

 
98,694

Corporate debt securities
3,658

 

 

 
3,658

Total cash equivalents
$
420,752

 
$
2

 
$

 
$
420,754

Marketable securities:
 
 
 
 
 
 
 
U.S. government and agency securities
$
304,515

 
$
3

 
$
(291
)
 
$
304,227

Corporate debt securities
173,633

 
1

 
(164
)
 
173,470

Total marketable securities
$
478,148

 
$
4

 
$
(455
)
 
$
477,697

Long-term marketable securities:
 
 
 
 
 
 
 
U.S. government and agency securities
$
94,868

 
$
1

 
$
(164
)
 
$
94,705

Corporate debt securities
29,561

 

 
(31
)
 
29,530

Equity securities
1,700

 
2,260

 

 
3,960

Total long-term marketable securities
$
126,129

 
$
2,261

 
$
(195
)
 
$
128,195

 
December 31, 2016
 
Amortized Cost
 
Gross Unrealized Holding Gains
 
Gross Unrealized Holding Losses
 
Estimated Fair Value
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
173,746

 
$

 
$

 
$
173,746

U.S. government and agency securities
4,712

 

 

 
4,712

Corporate debt securities
6,334

 

 
(6
)
 
6,328

Total cash equivalents
$
184,792

 
$

 
$
(6
)
 
$
184,786

Marketable securities:
 
 
 
 
 
 
 
Commercial paper
$
64,260

 
$

 
$

 
$
64,260

U.S. government and agency securities
320,224

 
51

 
(68
)
 
320,207

Corporate debt securities
160,379

 
18

 
(180
)
 
160,217

Total marketable securities
$
544,863

 
$
69

 
$
(248
)
 
$
544,684

Long-term marketable securities:
 
 
 
 
 
 
 
U.S. government and agency securities
$
132,622

 
$
4

 
$
(364
)
 
$
132,262

Corporate debt securities
55,920

 
1

 
(177
)
 
55,744

Equity securities
1,700

 

 

 
1,700

Total long-term marketable securities
$
190,242

 
$
5

 
$
(541
)
 
$
189,706


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Table of Contents

The following tables summarize the gross unrealized holding losses and fair value for investments in an unrealized loss position, and the length of time that individual securities have been in a continuous loss position (in thousands):
 
September 30, 2017
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency securities
$
213,253

 
$
(269
)
 
$
17,982

 
$
(22
)
 
$
231,235

 
$
(291
)
Corporate debt securities
148,459

 
(130
)
 
16,982

 
(34
)
 
165,441

 
(164
)
Total marketable securities
$
361,712

 
$
(399
)
 
$
34,964

 
$
(56
)
 
$
396,676

 
$
(455
)
Long-term marketable securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency securities
$
92,215

 
$
(164
)
 
$

 
$

 
$
92,215

 
$
(164
)
Corporate debt securities
29,530

 
(31
)
 

 

 
29,530

 
(31
)
Total long-term marketable securities
$
121,745

 
$
(195
)
 
$

 
$

 
$
121,745

 
$
(195
)
 
December 31, 2016
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency securities
$
143,480

 
$
(56
)
 
$
9,988

 
$
(12
)
 
$
153,468

 
$
(68
)
Corporate debt securities
128,013

 
(180
)
 

 

 
128,013

 
(180
)
Total marketable securities
$
271,493

 
$
(236
)
 
$
9,988

 
$
(12
)
 
$
281,481

 
$
(248
)
Long-term marketable securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency securities
$
129,163

 
$
(364
)
 
$

 
$

 
$
129,163

 
$
(364
)
Corporate debt securities
53,643

 
(177
)
 

 

 
53,643

 
(177
)
Total long-term marketable securities
$
182,806

 
$
(541
)
 
$

 
$

 
$
182,806

 
$
(541
)
The Company evaluated its securities for other-than-temporary impairment and considers the decline in market value for the securities to be primarily attributable to current economic and market conditions. For the debt securities, it is not more-likely-than-not that the Company will be required to sell the securities, and the Company does not intend to do so prior to the recovery of the amortized cost basis.
All debt securities have an effective maturity date of three years or less.
4. Fair Value Measurements
The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):
 
September 30, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 
 
 
 
 
 
 
Money market funds
$
318,402

 
$

 
$

 
$
318,402

U.S. government and agency securities

 
497,626

 

 
497,626

Corporate debt securities

 
206,658

 

 
206,658

Equity securities
3,960

 

 

 
3,960

Total financial assets
$
322,362

 
$
704,284

 
$

 
$
1,026,646

Financial liabilities:
 
 
 
 
 
 
 
Success payment liabilities
$

 
$

 
$
84,603

 
$
84,603

Contingent consideration

 

 
24,901

 
24,901

Total financial liabilities
$

 
$

 
$
109,504

 
$
109,504


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December 31, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 
 
 
 
 
 
 
Money market funds
$
173,746

 
$

 
$

 
$
173,746

Commercial paper

 
64,260

 

 
64,260

U.S. government and agency securities

 
457,181

 

 
457,181

Corporate debt securities

 
222,289

 

 
222,289

Equity securities
1,700

 

 

 
1,700

Total financial assets
$
175,446

 
$
743,730

 
$

 
$
919,176

Financial liabilities:
 
 
 
 
 
 
 
Success payment liabilities
$

 
$

 
$
22,786

 
$
22,786

Contingent consideration

 

 
20,896

 
20,896

Total financial liabilities
$

 
$

 
$
43,682

 
$
43,682

The Company measures the fair value of money market funds based on quoted prices in active markets for identical assets or liabilities. The Level 2 marketable securities include U.S. government and agency securities, corporate debt securities, and commercial paper and are valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands):
 
Success Payment Liabilities
 
Contingent Consideration
 
Total
Balance as of December 31, 2016
$
22,786

 
$
20,896

 
$
43,682

Changes in fair value (1)
61,817

 
4,005

 
65,822

Balance as of September 30, 2017
$
84,603

 
$
24,901

 
$
109,504

 
(1)
The amount of success payment and contingent consideration milestones achieved, as well as the changes in fair value for success payment liabilities and contingent consideration, are recorded in research and development expense in the condensed consolidated statements of operations.
As of September 30, 2017 and December 31, 2016, the estimated fair value of the success payment obligations, after giving effect to the success payments achieved by FHCRC and MSK, was approximately $110.6 million and $37.0 million, respectively. Included in research and development expense for the three months ended September 30, 2017 and 2016 was an expense of $37.2 million and a gain of $17.7 million, respectively, related to the change in fair value of the success payment obligations. Included in research and development expense for the nine months ended September 30, 2017 and 2016 was an expense of $61.8 million and a gain of $20.8 million, respectively, related to the change in fair value of the success payment obligations. See Note 2, Collaboration and License Agreements, to these condensed consolidated financial statements, as well as Note 5 to the financial statements included in the 2016 Annual Report, for additional discussion of estimated fair value of the success payment obligations.
The Company utilizes significant estimates and assumptions in determining the estimated success payment liability and associated expense at each balance sheet date. The assumptions used to calculate the fair value of the success payments are subject to a significant amount of judgment including the expected volatility, estimated term, and estimated number and timing of valuation measurement dates. A small change in the assumptions and other inputs, such as the fair value of the Company's common stock, may have a relatively large change in the estimated valuation and associated liability and expense. For example, keeping all other variables constant, a hypothetical 10% increase in the stock price at September 30, 2017 from $44.86 per share to $49.35 per share would have increased the expense recorded in the third quarter of 2017 associated with the success payment liability by $11.5 million. A hypothetical 10% decrease in the stock price from $44.86 per share to $40.37 per share would have decreased the expense recorded in the third quarter of 2017 associated with the success payment liability by $10.6 million. Further, keeping all other variables constant, a hypothetical 35% increase in the stock price at September 30, 2017 from $44.86 per share to $60.56 per share would have increased the expense recorded in the third quarter of 2017 associated with the success payment liability by $37.8 million. A hypothetical 35% decrease in the stock price from $44.86 per share to $29.16 per share would have decreased the expense recorded in the third quarter of 2017 associated with the success payment liability to zero, resulting in a gain of $0.3 million.

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In connection with the acquisitions of Stage Cell Therapeutics GmbH ("Stage") and X-Body, Inc. ("X-Body") in the second quarter of 2015, the Company agreed to pay additional amounts based on the achievement of certain technical, clinical, regulatory, and commercialization milestones. This contingent consideration is measured at fair value and is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions the Company believes would be made by a market participant. The Company assesses these estimates on an on-going basis as additional data impacting the assumptions is obtained.
Contingent consideration may change significantly as development progresses and additional data are obtained, impacting the Company’s assumptions regarding probabilities of successful achievement of related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. In evaluating the fair value information, judgment is required to interpret the data used to develop the estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates.
The significant unobservable inputs used in the measurement of fair value of the Company’s contingent consideration are probabilities of successful achievement of the milestones, the period in which these milestones are expected to be achieved ranging from 2017 to 2043, and a discount rate of 16%. Significant increases or decreases in any of the probabilities of success and other inputs would result in a significantly higher or lower fair value measurement, respectively.
As of September 30, 2017, the estimated fair values of the contingent consideration associated with the Stage and X-Body acquisitions, after giving effect to the milestone achieved in 2016, were $21.3 million and $3.6 million, respectively. The Company recognized an expense of $0.8 million and $0.3 million related to the change in fair value of the contingent consideration for the three months ended September 30, 2017 and 2016, respectively. The Company recognized an expense of $4.0 million and a gain of $5.2 million related to the change in fair value of the contingent consideration in the nine months ended September 30, 2017 and 2016, respectively. The expense and gain are recorded in research and development expense in the condensed consolidated statement of operations.
5. Intangible Assets
Intangible assets consist of developed technology and in-process research and development ("IPR&D") obtained from the 2016 AbVitro, Inc. ("AbVitro") acquisition and the 2015 Stage and X-Body acquisitions. IPR&D assets are required to be classified as indefinite-lived assets until they become finite-lived assets upon the successful completion of the associated research and development effort.
Beginning in the second quarter of 2017, the intangible asset recognized in connection with the AbVitro acquisition completed development and reached technological feasibility, and the Company began amortizing the asset over an estimated life of three years.
Identifiable intangible assets consisted of the following (in thousands):
 
September 30, 2017
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Intangible
Assets, Net
Finite-lived intangible assets:
 
 
 
 
 
Developed technology
$
29,017

 
$
(4,836
)
 
$
24,181

Indefinite-lived intangible assets:
 
 
 
 
 
In-process research and development
52,981

 

 
52,981

Total identifiable intangible assets
$
81,998

 
$
(4,836
)
 
$
77,162

Amortization expense recognized related to intangible assets was $2.4 million and $4.8 million for the three and nine months ended September 30, 2017, respectively. There was no amortization expense recognized related to intangible assets for the three and nine months ended September 30, 2016 as all intangibles were deemed to be indefinite-lived at that time.

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Estimated future amortization expense related to finite-lived intangible assets as of September 30, 2017 is as follows (in thousands):
Year ending December 31:
 
2017
$
2,418

2018
9,672

2019
9,672

2020
2,419

Total future amortization expense
$
24,181

There was no impairment of intangible assets as of September 30, 2017 and December 31, 2016.
6. Long-term Debt
In April 2017, the Company entered into a debt agreement for a principal amount of $11.0 million which was used to fund the purchase of the Juno-owned and -operated manufacturing facility in Bothell, Washington. The terms of the agreement include a 4.55% annual fixed interest rate and provide for 120 monthly payments beginning June 1, 2017, with the final payment of all outstanding interest and principal due May 1, 2027.
The following table summarizes future principal payments on long-term debt as of September 30, 2017 (in thousands):
Year ending December 31:
 
2017
$
69

2018
286

2019
299

2020
313

2021
328

Thereafter
9,613

Total future principal payments
$
10,908

As of September 30, 2017, the fair value of the Company's long-term debt approximates carrying value based on the borrowing rates currently available to the Company for loans with similar terms using Level 2 inputs.
7. Stock-Based Compensation
Stock-Based Compensation
Stock-based compensation expense was recognized in the condensed consolidated statements of operations as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Research and development (1)
$
11,977

 
$
8,751

 
$
33,345

 
$
29,109

General and administrative
6,873

 
5,436

 
19,920

 
15,863

Total stock-based compensation expense (2)
$
18,850

 
$
14,187

 
$
53,265

 
$
44,972

(1)
Included in research and development stock-based compensation expense for the nine months ended September 30, 2016, was $2.2 million related to the payout of employee stock options in connection with the AbVitro acquisition.
(2)
Included in stock-based compensation expense recognized for the three months ended September 30, 2017 and 2016, is $1.9 million and $1.4 million, respectively, related to service providers other than employees, scientific founders, and directors, including $1.4 million and $0.9 million, respectively, for a former cofounding director who became a consultant upon his departure from the board of directors. Included in stock-based compensation expense recognized for the nine months ended September 30, 2017 and 2016, is $4.3 million and $5.7 million, respectively, related to service providers other than employees, scientific founders, and directors, including $3.0 million and $3.3 million, respectively, for a former cofounding director who became a consultant upon his departure from the board of directors.

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Total stock-based compensation cost related to unvested awards not yet recognized and the weighted average periods over which the awards are expected to be recognized as of September 30, 2017 for all employees are as follows:
 
Stock Options
 
Restricted Stock
and RSUs
Unrecognized stock-based compensation cost (in thousands)
$
122,685

 
$
35,876

Expected weighted average period compensation costs to be recognized (years)
2.63

 
2.56

Restricted Stock and RSUs
A summary of the Company’s restricted stock and RSU activity is as follows (in thousands, except per share data):
 
Restricted Stock
and RSUs
 
Weighted Average Fair Value at Date of Grant per Share
Unvested shares as of December 31, 2016
3,055

 
$
7.10

Granted
1,391

 
21.79

Vested
(1,757
)
 
3.09

Forfeited
(562
)
 
6.55

Unvested shares as of September 30, 2017
2,127

 
$
20.12

Stock Options
A summary of the Company’s stock option activity is as follows (in thousands, except per share and contractual life data):
 
Stock Options
 
Weighted 
Average Exercise
Price per Share
 
Weighted Average Remaining Contractual Life (years)
 
Aggregate Intrinsic Value
Outstanding as of December 31, 2016
8,521

 
$
30.28

 
 
 
 
Granted
3,800

 
24.15

 
 
 
 
Exercised
(364
)
 
15.90

 
 
 
 
Forfeited/Cancelled
(898
)
 
34.55

 
 
 
 
Outstanding as of September 30, 2017
11,059

 
$
28.28

 
8.34
 
$
191,950

Exercisable as of September 30, 2017
3,847

 
$
29.76

 
7.47
 
$
64,538

The fair value of each stock option granted has been determined using the Black-Scholes option pricing model. The material factors incorporated in the Black-Scholes model in estimating the fair value of the options granted to employees, directors, and consultants included the following:
Assumptions
Nine Months Ended September 30, 2017
Risk free interest rate
1.62% – 2.40%
Expected volatility
75
Expected life (years)
3.22 - 9.96
Expected dividend yield
0
For employees, scientific founders, and directors, the expected life was calculated based on the simplified method as permitted by the SEC Staff Accounting Bulletin No. 110, Share-Based Payment. For other service providers, the expected life was calculated using the contractual term of the award. Management’s estimate of expected volatility was based on available information about the historical volatility of stocks of similar publicly-traded companies for a period matching the expected term assumption and its own historical and implied future volatility. The risk-free interest rate is based on a U.S. Treasury instrument whose term is consistent with the expected life of the stock options.

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Table of Contents

8. Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) and the adjustments to other comprehensive income (loss) are as follows (in thousands):
 
Foreign Currency Translation Adjustments
 
Net Unrealized Gain (Loss) on Marketable Securities
 
Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2016
$
(1,791
)
 
$
(1,051
)
 
$
(2,842
)
Other comprehensive income
3,834

 
1,512

 
5,346

Balance as of September 30, 2017
$
2,043

 
$
461

 
$
2,504

9. Income Taxes
The Company recorded an income tax benefit of $4.2 million on a pre-tax loss of $305.3 million for the nine months ended September 30, 2017. The income tax benefit primarily relates to the benefit associated with the net loss incurred by the Company’s German subsidiary in the nine months ended September 30, 2017.
The Company recorded an income tax benefit of $9.1 million on a pre-tax loss of $201.9 million for the nine months ended September 30, 2016. Of the total tax benefit, $6.7 million relates to the release of valuation allowance on the U.S. deferred tax assets as a result of the deferred tax liabilities established for intangible assets from the acquisition of AbVitro, net of tax attributes, and $2.0 million relates to the benefit associated with the net loss incurred by the Company’s German subsidiary in the nine months ended September 30, 2016.
The Company maintains a full valuation allowance on its net U.S. deferred tax assets. The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more-likely-than-not that deferred tax assets are recoverable. In making this assessment, significant weight is given to evidence that can be objectively verified. In its evaluation, the Company considered its cumulative loss in recent years and its forecasted losses in the near term as significant negative evidence. Based upon a review of the four sources of income identified within Accounting Standard Codification ("ASC") 740, Accounting for Income Taxes, the Company determined that the negative evidence outweighed the positive evidence and a full valuation allowance on its U.S. net deferred tax assets will be maintained. The Company will continue to assess the realizability of its deferred tax assets going forward and will adjust the valuation allowance as needed. The Company has determined that it is more-likely-than-not that it will realize the benefit of the losses for its German subsidiary and has not recorded a valuation allowance against the German deferred tax assets.
The Company is generally subject to examination by the U.S. federal and local income tax authorities for all tax years in which a loss carryforward is available and is subject to examination in Germany for four years. The Company's German subsidiary is currently under examination by the German tax authorities for the years ended December 31, 2013 through December 31, 2015.
The Company applies judgment in the determination of the consolidated financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. As of September 30, 2017 and December 31, 2016, the Company's uncertain tax positions were immaterial.
10. Net Loss per Share
Basic and diluted net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents. The Company’s potentially dilutive shares, which include unvested restricted stock, unvested RSUs, options to purchase common stock, and potential shares issued for success payments, are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.
The share amounts in the table below were excluded from the calculation of diluted net loss per share for the periods indicated due to their anti-dilutive effect (in thousands):
 
Nine Months Ended September 30,
 
2017
 
2016
Unvested restricted stock and RSUs
2,127

 
3,580

Options to purchase common stock
11,059

 
8,007

Total
13,186

 
11,587


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Table of Contents

11. Commitments and Contingencies
Leases
The Company has entered into various lease agreements for its office, laboratory, and manufacturing spaces with original lease periods expiring between 2019 and 2026. In addition to minimum rent, certain leases require payment of real estate taxes, insurance, common area maintenance charges and other executory costs. These executory costs are not included in the table below. Certain of these arrangements have free or escalating rent payment provisions. The Company recognizes rent expense under such arrangements on a straight-line basis over the effective term of each lease.
The following table summarizes the Company’s future minimum lease commitments as of September 30, 2017 (in thousands):
Year ending December 31:
 
2017
$
757

2018
13,221

2019
15,222

2020
14,866

2021
14,342

Thereafter
37,108

Total future minimum lease payments
$
95,516

Rent expense for the three months ended September 30, 2017 and 2016 was $2.8 million and $0.9 million, respectively. Rent expense for the nine months ended September 30, 2017 and 2016 was $8.0 million and $3.3 million, respectively.
Litigation
From time to time, the Company may become involved in litigation or proceedings relating to claims arising from the ordinary course of business.
Beginning on July 12, 2016, three putative securities class action complaints were filed against the Company and several of its officers. On October 7, 2016, these complaints were consolidated into a single action titled "In re Juno Therapeutics, Inc." On October 19, 2016, the Court appointed a lead plaintiff. On December 12, 2016, the lead plaintiff filed an amended complaint.
The putative class in the amended complaint is composed of all purchasers of the Company’s securities between May 9, 2016 and November 22, 2016, inclusive. The amended complaint names as defendants the Company, its chief executive officer, its chief financial officer, and its chief medical officer and generally alleges material misrepresentations and omissions in public statements regarding patient deaths in the Company’s Phase II clinical trial of JCAR015 and the safety of JCAR015, violations by all named defendants of Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, as well as violations of Section 20(a) of the Exchange Act by the individual defendants. The amended complaint seeks compensatory damages of an undisclosed amount. On February 2, 2017, the Company and the individual defendants filed a motion to dismiss the complaint. On June 14, 2017, the defendants’ motion to dismiss was denied. On September 15, 2017, plaintiffs filed a motion to certify the proposed class. On October 20, 2017, the Company and the individual defendants filed a non-opposition to the motion for class certification. On October 24, 2017, the Court issued an order granting the lead plaintiff’s motion for class certification. On October 24, 2017, the Court also entered a scheduling order providing deadlines, including that discovery must be completed by March 18, 2019; all dispositive motions must be filed by April 16, 2019; and mediation, if requested by the parties, must be held by May 31, 2019. The Court scheduled a 2-3 week trial to commence on July 15, 2019.
In addition, on September 8, 2017, a stockholder filed a purported derivative action on behalf of the Company against two of the Company's executive officers and certain members of our board of directors in the federal district court for the Western District of Washington. The complaint alleges claims for breaches of fiduciary duties arising out of the same issues that are the subject of the securities class action, as well as claims for breaches of fiduciary duties and under the federal securities laws related to the Company's compensation for non-employee directors. The Company has not yet responded to the complaint.
On August 22, 2017, City of Hope filed a lawsuit against the Company, City of Hope v. Juno Therapeutics, Inc., Case No. 2:17-cv-06201-RGK, in the federal district court for the Central District of California. The complaint alleges that the Company has materially breached its exclusive license agreement with City of Hope by failing to seek consent for an alleged sublicense of the Company's rights under such license to Celgene, and by failing to pay fees owed in connection with that alleged sublicense. The City of Hope license requires the Company to pay City of Hope 15% of sublicense revenues, defined as “all consideration received by [the Company] in return for the grant of rights to manufacture, use, offer for sell, or sell a Licensed Product, other

18

Table of Contents

than consideration in the form of: (i) running royalties calculated as a function of Net Sales and payment, (ii) payment or reimbursement to [the Company] of costs actually incurred by [the Company] in conducting clinical trials of a Licensed Product, and (iii) reimbursement for actual Patent Expenses due pursuant to this Agreement.” In its request for relief, City of Hope seeks compensatory damages in an amount “no less than 15% of all consideration received by the Company pursuant to the [Celgene] Collaboration Agreement, [Celgene] Share Purchase Agreement, and Celgene Option Exercise [i.e., the Celgene CD19 License].” The complaint also seeks a declaratory judgment that the Company materially breached the City of Hope license. On August 31, 2017, the Company filed an answer and counterclaim in the lawsuit, denying City of Hope’s allegations of breach of contract, asserting several affirmative defenses, and bringing various counterclaims, including claims for breach of contract and breach of the covenant of good faith and fair dealing, and seeking, among other things, a declaratory judgment that City of Hope has no grounds to terminate the City of Hope license. City of Hope filed an amended complaint on September 21, 2017, which Juno answered on October 5, 2017. 
The Company has not recorded a liability as of September 30, 2017 because a potential loss is not probable or reasonably estimable given the preliminary nature of the proceedings.
12. Related-Party Transactions
The Company is party to the Celgene Collaboration Agreement, the Celgene CD19 License, the Celgene Share Purchase Agreement, a voting agreement, and a registration rights agreement with Celgene, who is a holder of more than 5% of the Company’s common stock. See Note 2, Collaboration and License Agreements, to these condensed consolidated financial statements, as well as Note 5 to the financial statements included in the 2016 Annual Report.

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Table of Contents

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our condensed consolidated financial statements (unaudited) and related notes included elsewhere in this report. This Quarterly Report on Form 10-Q contains forward-looking statements that are based on management’s beliefs and assumptions and on information currently available to management. All statements other than statements of historical facts contained in this report are forward-looking statements. In some cases, you can identify forward-looking statements by the following words: "may," "will," "could," "would," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "project," "aim," "potential," "continue," "ongoing," "goal," or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words.
These forward-looking statements, include, but are not limited to, statements regarding: the success, cost and timing of our product development activities and clinical trials; our ability and the potential to successfully advance and leverage our technology platform to improve the safety and effectiveness of our existing product candidates; the potential costs and benefits for our identified research priorities to advance our CAR and TCR technologies; the potential of our collaboration with Celgene and the ability and willingness of Celgene to be our commercialization partner outside of North America, including with respect to our CD19 license agreement with Celgene and the exercise by Celgene of its opt-in right to the CD19 program; our anticipated expenses with respect to the development of our CD19 product candidates; the ability of JW Therapeutics (Shanghai) Co., Ltd to develop and commercialize product candidates in China; the ability and willingness of our third-party research institution collaborators to continue research and development activities relating to our product candidates; the potential of our other research and development and strategic collaborations, including our collaborations with Editas Medicine, Inc., Fate Therapeutics, Inc., and MedImmune Limited; our ability to obtain orphan drug designation or breakthrough status for our CD19 product candidates and any other product candidates, or to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product candidate; our ability to license additional intellectual property relating to our product candidates; our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates; our ability to commercialize our products in light of the intellectual property rights of others; our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates, and the potential terms of such funding; our plans to research, develop, and commercialize our product candidates; the potential of the technologies we have acquired through license agreements or strategic transactions, such as the acquisition of Stage, X-Body, AbVitro, and RedoxTherapies; the size and growth potential of the markets for our product candidates, and our ability to serve those markets; regulatory developments in the United States and foreign countries; our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately; our plans to develop our own manufacturing facilities, including our manufacturing facility in Bothell, Washington and our ability to scale our manufacturing operations; the potential benefits of our efforts to optimize our process development and manufacturing; the success of competing therapies that are or may become available; our ability to attract and retain key scientific, quality assurance/control, manufacturing, or management personnel; the accuracy of our estimates regarding expenses, success payments, future revenue, capital requirements, profitability, and needs for additional financing; fluctuations in the trading price of our common stock; the anticipated benefits of our litigation settlement with Penn and Novartis; our plans regarding our corporate headquarters; and our use of the proceeds from our initial public offering and proceeds received from Celgene.
These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under "Risk Factors" in this Quarterly Report on Form 10-Q. These forward-looking statements speak only as of the date hereof. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. Unless the context requires otherwise, in this Quarterly Report on Form 10-Q, the terms "Juno," "Company," "we," "us" and "our" refer to Juno Therapeutics, Inc., a Delaware corporation, and its wholly-owned subsidiaries on a consolidated basis.
Overview
We are building a fully-integrated biopharmaceutical company focused on developing innovative cellular immunotherapies for the treatment of cancer. Founded on the vision that the use of human cells as therapeutic entities will drive one of the next important phases in medicine, we are developing cell-based cancer immunotherapies based on our CAR and high-affinity TCR technologies to genetically engineer T cells to recognize and kill cancer cells. We have shown compelling clinical responses in clinical trials using multiple cell-based product candidates to address refractory B cell lymphomas and leukemias, and we also have a number of ongoing trials exploring our platform in solid-organ cancers and multiple myeloma, and in combination with various strategies to overcome the immune-suppressive effects of cancer. Over time, we aim to improve and leverage our cell-

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based platform to develop additional product candidates to address a broad range of cancers and human diseases, including moving forward our preclinical product candidates that target additional hematologic and solid-organ cancers.
We are conducting a Phase I trial with JCAR017 in adult r/r aggressive non-Hodgkin lymphoma ("NHL"), including relapsed or refractory ("r/r") diffuse large B cell lymphoma ("DLBCL"), and are currently enrolling the cohort we believe may support registration. We are also planning to begin a Phase I/II trial with JCAR017 in r/r chronic lymphocyctic leukemia ("CLL") in the fourth quarter of 2017. If the results of these trials are favorable, we believe we may obtain U.S. regulatory approval in r/r DLBCL as early as 2018 and in r/r CLL as early as 2019. Key variables impacting the timing of approval will be the time it takes to complete enrollment of our pivotal cohort, the timing of our FDA submission, which we expect to be completed for JCAR017 in r/r DLBCL in the second half of 2018, and the duration of FDA review. Additionally, we have begun a Phase Ib clinical trial of JCAR017 in combination with durvalumab in adult r/r aggressive NHL. We also intend to develop JCAR017 or a next generation product candidate in both pediatric r/r acute lymphoblastic leukemia ("ALL") and adult r/r ALL.
We are continuing to enroll patients in an ongoing Phase I/II trial for JCAR014 in B cell malignancies, and although we do not plan to move JCAR014 into registration trials, we plan to use this trial to explore important questions that may improve our platform overall, including testing the combination of JCAR014 and ibrutinib in r/r CLL patients. We are enrolling patients in a combination Phase Ib clinical trial combining JCAR014 with durvalumab for the treatment of r/r NHL. Additionally, we are conducting a Phase I trial in adult patients with certain B cell malignancies using a CD19-directed product candidate that incorporates a fully human binding domain. Additionally, we have commenced a Phase I trial through our collaborator MSK of a CD19/4-1BBL "armored" CAR in r/r CLL patients.
Beyond CD19, we are conducting Phase I trials for additional product candidates that target seven different cancer-associated proteins in hematological and solid organ cancers, including two Phase I trials for CAR T cell product candidates targeting B-cell maturation antigen ("BCMA") in patients with multiple myeloma. We have a number of other preclinical programs against other targets that we expect to move into human testing over the next several years.
We have assembled a talented group of scientists, engineers, clinicians, directors, and other advisors who develop and consolidate technologies and intellectual property from some of the world’s leading research institutions, including FHCRC, MSK, Seattle Children's Research Institute ("SCRI"), the University of California, San Francisco, and the National Cancer Institute ("NCI"). We have also entered into a number of strategic collaborations with commercial companies that we believe will help us manufacture and commercialize our product candidates around the world or develop additional or improved product candidates, including Celgene, Editas Medicine, Inc. ("Editas"), Fate Therapeutics, Inc. ("Fate Therapeutics"), and MedImmune Limited ("MedImmune").
We have established a Juno-owned and -operated manufacturing facility in Bothell, Washington. We began manufacturing clinical trial material from this facility beginning in the first quarter of 2016, and plan to manufacture commercial products, subject to the required regulatory approvals, beginning as early as 2018.
Revenue for the three months ended September 30, 2017 and 2016 was $44.8 million and $20.8 million, and revenue for the nine months ended September 30, 2017 and 2016 was $85.4 million and $58.2 million, respectively. In the future, we may generate revenue from the Celgene collaboration, strategic alliances, licensing arrangements, product sales, and royalties, or a combination of these. We expect that any revenue we generate will fluctuate from quarter to quarter and year to year as a result of the timing and amount of opt-in payments from Celgene, license fees, milestones, reimbursement of costs incurred, other payments, and product sales, to the extent any product candidates are successfully commercialized. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval of them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.
As described in Note 5 of the financial statements included in the 2016 Annual Report, in April 2016 we entered into a license agreement with Celgene pertaining to our CD19 program. As a result, we expect the development activities around the CD19 program to continue to grow as Celgene leads development of our CD19 product candidates in the Celgene Territory. Under the license agreement, we and Celgene will generally share worldwide development expenses for certain CD19 product candidates, although either party may opt out of funding specific studies being led by the other. We will also receive royalties from Celgene for CAR product candidates arising from the CD19 program at a percentage in the mid-teens of net sales of such product candidates in the Celgene Territory.
We have agreed to make success payments to each of FHCRC and MSK pursuant to the terms of our collaboration agreements with each of those entities. In December 2015, success payment obligations to FHCRC were triggered in the amount of $75.0 million less indirect cost offsets of $3.3 million and to MSK of $10.0 million less indirect cost offsets of $1.0 million. We elected to make the payments to FHCRC and MSK in shares of our common stock, and thereby issued 1,601,085 and 240,381 shares of our common stock to FHCRC in December 2015, and to MSK in March 2016, respectively. In April 2016, we repurchased the 240,381 shares of our common stock issued to MSK at a repurchase price of $41.90 per share.

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As of September 30, 2017, we had cash, cash equivalents, and marketable securities of $1.06 billion compared with $922.3 million as of December 31, 2016. Cash used in operations for the nine months ended September 30, 2017 was $132.2 million and is net of a cash inflow of $37.7 million received in connection with a tenant allowance for our new headquarters facility and $30.8 million from the partial reimbursement by Celgene of research and development costs incurred by us in the fourth quarter of 2016 and the first half of 2017. Cash provided by investing activities for the nine months ended September 30, 2017 was $70.9 million and is net of a cash outflow of $56.9 million for the purchase of property and equipment, the majority of which related to the build-out of our new headquarters facility. Cash provided by financing activities in the nine months ended September 30, 2017 was $323.2 million and includes net cash proceeds from the September 2017 follow-on public offering of $272.4 million, cash proceeds from Celgene of $32.8 million, $31.1 million of which related to the concurrent private placement and the remaining $1.7 million was for the purchase of 75,568 shares of our common stock in the first quarter of 2017, as well as $10.8 million in net cash proceeds related to a long-term debt agreement entered into in April.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies from those described in Part II—Item 7— "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in our 2016 Annual Report.
Components of Operating Results
Revenue
Our revenues have been primarily derived from collaboration and license agreements.
Ongoing collaboration revenue is generated from our collaboration with Celgene. The terms of this arrangement contain multiple deliverables, which include (1) access to certain of our technology through a non-exclusive, worldwide, royalty-free right and license to conduct certain activities under the collaboration and (2) participation on various collaboration committees. We recognize revenue from the $150.2 million upfront payment under the Celgene Collaboration Agreement ratably over the term of our estimated period of performance under the arrangement, which we estimate to be through June 2025. In addition to receiving upfront payments, we may also be entitled to option exercise fees. In April 2016, Celgene exercised its right to opt-in to our CD19 program, and as a result, we entered into the Celgene CD19 License and received an option exercise fee of $50.0 million. The license agreement contains the following deliverables: (1) an exclusive license with respect to intellectual property, (2) transfer of certain clinical and manufacturing knowledge and related support, and (3) participation on various collaboration committees during the technology transfer period. The $50.0 million option exercise fee is being recognized ratably over the period we expect to fulfill these performance obligations, which we estimate to be approximately two years.
Additionally, we and Celgene will generally share worldwide research and development costs for certain CD19 product candidates. To the extent our research and development costs for certain product candidates in the CD19 program exceed Celgene’s research and development costs for the CD19 program for a given quarter, Celgene is required to provide us partial reimbursement for such costs. Either party may opt out from the cost sharing arrangement for specific studies being led by the other party, with the possibility to opt back in to the study in the future at a premium in exchange for the right to use data from that study in such party's territory. We recognize the reimbursement by Celgene as revenue in the period in which the costs are incurred. To the extent Celgene’s eligible research and development costs for the CD19 program exceed our eligible research and development costs for the CD19 program for a given quarter, we are required to provide Celgene partial reimbursement for such costs. We recognize any reimbursements owed to Celgene as research and development expense in the period in which the costs are incurred. As a result, our revenues and research and development expenses may fluctuate depending on which party in the collaboration is incurring the majority of the development costs in any particular quarterly period, and as a result of the timing and amount of option exercise fees and other payments from our collaboration and license agreements.
We have also recognized upfront and milestone revenue under our sublicense agreement with Novartis. For the nine months ended September 30, 2017 and 2016 we recognized milestone revenue of $25.0 million and $14.3 million, respectively. In the future we may recognize revenue upon the achievement of specified clinical, regulatory, and commercialization milestones for licensed products under the Novartis agreement. Each of these milestones will be reduced by 50% if we achieve the milestone

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before Novartis achieves the same milestone. Additionally, we are obligated to repay Novartis 50% of a milestone payment amount where Novartis achieves a milestone and we subsequently achieve the same milestone. Novartis is also required to pay us royalties on the U.S. net sales of licensed products.
Research and Development Expenses
Research and development expenses represent costs incurred by us for the discovery, development, and manufacture of our product candidates and include costs to acquire technology complimentary to our own, external research and development expenses incurred under arrangements with third parties, such as contract research organizations ("CROs"), contract manufacturing organizations ("CMOs"), collaboration partners, academic and non-profit institutions and consultants, salaries and personnel-related costs, including non-cash stock-based compensation, changes in the estimated fair value of our success payment liabilities to FHCRC and MSK, changes in the estimated fair value of our contingent consideration liabilities, intangible asset amortization, milestones, and other expenses, which include direct and allocated expenses for laboratory, facilities, overhead and other costs.
We use our employee and infrastructure resources across multiple research and development programs directed toward developing our cell-based platform and for identifying and developing product candidates. We manage certain activities such as contract research, clinical trial operations, and manufacture of product candidates through our partner institutions or other third-party vendors. We track our significant external costs by product candidate. Although we began in the second quarter of 2016 to calculate, at a high level, our internal personnel costs by project, we do not have such data for all of 2016, so we are not at this time disclosing the allocation of internal personnel costs by product candidate. Due to the number of ongoing projects and our ability to use resources across several projects, we do not record or maintain information regarding the other indirect operating costs incurred for our research and development programs on a program-specific basis.

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Our research and development expenses by project were as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Project-specific external costs:
 
 
 
 
 
 
 
JCAR017 (1)
$
16,587

 
$
4,155

 
$
33,741

 
$
9,602

JCAR015
283

 
5,226

 
2,802

 
15,689

JCAR014
1,684

 
1,147

 
5,134

 
4,143

CD19 general (2)
8,052

 
425

 
10,261

 
16,676

JCAR018 (3)

 
74

 

 
23,433

JCARH125
2,153

 

 
7,445

 

Early development
6,280

 
5,750

 
18,837

 
20,910

Success payment expense (gain) related to FHCRC collaboration agreement
22,989

 
(10,455
)
 
37,788

 
(13,287
)
Success payment expense (gain) related to MSK collaboration agreement
14,260

 
(7,184
)
 
24,029

 
(7,471
)
Change in estimated fair value of contingent consideration
806

 
336

 
4,005

 
(5,175
)
Upfront fees to acquire technology

 
15,000

 

 
15,000

Intangible asset amortization
2,418

 

 
4,836

 

Unallocated internal and external research and development costs (4)
64,760

 
46,380

 
175,410

 
127,367

Total research and development expenses
$
140,272

 
$
60,854

 
$
324,288

 
$
206,887

(1)
JCAR017 expenses for the three and nine months ended September 30, 2017 include milestone expense of $9.1 million.
(2)
CD19 general expenses for the three and nine months ended September 30, 2017 and for the nine months ended September 30, 2016 include milestone expense of $6.8 million and $12.5 million, respectively.
(3)
JCAR018 expenses for the nine months ended September 30, 2016 include milestone expense of $23.2 million.
(4)
Unallocated internal and external research and development costs include salaries and personnel-related costs, including non-cash stock-based compensation, for our personnel in research, clinical development, process development and manufacturing, regulatory, and other research and development functions; allocated facilities and other overhead costs; lab supplies; depreciation; and other research and development costs not specific to a project.
Research and development activities account for a significant portion of our operating expenses. Excluding amounts attributable to changes in the estimated fair value of the success payment and contingent consideration liabilities and upfront fees to acquire technology, we expect our research and development expenses to increase over the next several years as we implement our business strategy which includes conducting existing and new clinical trials, manufacturing clinical trial and preclinical study materials, expanding our research and development and process development efforts, seeking regulatory approval for product candidates that successfully complete clinical trials, and hiring additional personnel to support our research and development efforts. As a result of our decision to cease further development of JCAR015, we expect that expense associated with JCAR015 will significantly decrease in 2017 and future years, but these decreases will be offset in whole or in part by increased expenses for the development of other CD19 product candidates. Research and development expense related to our success payments is unpredictable and may vary significantly from quarter to quarter and year to year due to changes in our stock price or other assumptions used in the calculation. A significant decline in the estimated value of the success payment liability may result in a gain and possibly net income during the period. Amounts associated with the change in the estimated fair value of the contingent consideration liabilities also may vary significantly from quarter to quarter and year to year due to changes in our assumptions used in the calculation. In addition, we may incur research and development expense for acquisition of technology in the future, but the timing and amount of those expenses cannot be estimated with reliability and may also fluctuate from quarter to quarter and year to year.
General and Administrative Expenses
General and administrative expenses consist of salaries and personnel-related costs, including non-cash stock-based compensation, for our personnel in executive, legal, finance and accounting, human resources, commercial, and other

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administrative functions, legal costs, transaction costs associated with acquisitions and collaboration and licensing agreements, as well as fees paid for accounting and tax services, consulting fees, including costs to support commercial readiness, and facility costs not otherwise included in research and development expenses. Legal costs include general corporate legal fees, patent costs, and litigation expenses.
We anticipate that our general and administrative expenses will increase in the future to support potential commercialization of our product candidates, our continued research and development activities, and future business development opportunities. These increases will likely include costs related to outside consultants, attorneys, and accountants, among other expenses.
Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2017 and 2016
The following table summarizes our results of operations for the three and nine months ended September 30, 2017 and 2016 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Revenue
$
44,816

 
$
20,826

 
$
85,411

 
$
58,203

Operating expenses:
 
 
 
 
 
 
 
Research and development
140,272

 
60,854

 
324,288

 
206,887

General and administrative
26,347

 
18,441

 
70,689

 
51,210

Total operating expenses
166,619

 
79,295

 
394,977

 
258,097

Loss from operations
(121,803
)
 
(58,469
)
 
(309,566
)
 
(199,894
)
Other-than-temporary impairment loss

 

 

 
(5,490
)
Interest income, net
1,968

 
1,485

 
5,445

 
4,322

Other expenses, net
(83
)
 
(507
)
 
(1,187
)
 
(871
)
Loss before income taxes
(119,918
)
 
(57,491
)
 
(305,308
)
 
(201,933
)
Benefit for income taxes
1,785

 
594

 
4,238

 
9,131

Net loss
$
(118,133
)
 
$
(56,897
)
 
$
(301,070
)
 
$
(192,802
)
Net loss per share, basic and diluted
$
(1.12
)
 
$
(0.56
)
 
$
(2.88
)
 
$
(1.91
)
Revenue
The following table summarizes our revenue for the three and nine months ended September 30, 2017 and 2016, the majority of which is related to the amortization of upfront and option exercise fees, milestone payments, and reimbursement of certain research and development expenses under our Celgene Collaboration Agreement (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Celgene:
 
 
 
 
 
 
 
Recognition of upfront and option exercise fees
$
10,340

 
$
10,341

 
$
31,020

 
$
23,775

Reimbursement revenue
9,328

 
10,407

 
28,994

 
19,600

Celgene total
19,668

 
20,748

 
60,014

 
43,375

Novartis milestone revenue
25,000

 

 
25,000

 
14,250

Other
148

 
78

 
397

 
578

Total revenue
$
44,816

 
$
20,826

 
$
85,411

 
$
58,203

Revenue. Revenue was $44.8 million and $85.4 million for the three and nine months ended September 30, 2017, compared to $20.8 million and $58.2 million for the three and nine months ended September 30, 2016, respectively. The increase in the three months ended September 30, 2017 compared to the three months ended September 30, 2016 was due to milestone revenue recognized in the third quarter of 2017 in connection with the Novartis sublicense agreement. The increase in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 was primarily due to an increase in revenue recognized under our Celgene Collaboration Agreement and Celgene CD19 License for the upfront license fee and partial reimbursement by Celgene of research and development costs incurred by us, and an increase in milestone revenue recognized in connection with the Novartis sublicense agreement.

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Operating Expenses
Research and Development Expenses. Research and development expenses were $140.3 million and $324.3 million for the three and nine months ended September 30, 2017, compared to $60.9 million and $206.9 million for the three and nine months ended September 30, 2016, respectively.
The increase of $79.4 million in the three months ended September 30, 2017 was primarily due to:
a $54.9 million increase in expense related to changes in the estimated fair value of our success payment obligations,
a $17.9 million increase in milestone expense,
a $15.2 million increase in costs to manufacture our product candidates, execute our clinical development strategy, and expand our overall research and development capabilities, and
a $3.2 million increase in non-cash stock-based compensation expense.
These increases were offset by a decrease in costs to acquire technology of $14.7 million.
The increase of $117.4 million in the nine months ended September 30, 2017 was primarily due to:
an $82.6 million increase in expense related to changes in the estimated fair value of our success payment obligations,
a $46.7 million increase in costs to manufacture our product candidates, execute our clinical development strategy, and expand our overall research and development capabilities,
a $9.2 million increase in expense related to changes in the estimated fair value of our contingent consideration obligations,
a $4.8 million expense for the amortization of the intangible asset recorded in connection with the AbVitro acquisition, and
a $4.2 million increase in non-cash stock-based compensation expense.
These increases were offset by a decrease in milestone expense of $19.2 million and a decrease in costs to acquire technology of $10.9 million.
General and Administrative Expenses. General and administrative expenses were $26.3 million and $70.7 million for the three and nine months ended September 30, 2017, compared to $18.4 million and $51.2 million for the three and nine months ended September 30, 2016, respectively.
The increase of $7.9 million in the three months ended September 30, 2017 was primarily due to a $2.4 million increase in consulting and other expenses to support the growing organization including costs related to commercial readiness, a $2.4 million increase in personnel expenses primarily related to increased headcount to support the business, a $1.7 million increase in legal fees, and a $1.4 million increase in stock-based compensation expense.
The increase of $19.5 million for the nine months ended September 30, 2017 was primarily due to a $6.6 million increase in consulting and other expenses to support the growing organization including costs related to commercial readiness, a $6.0 million increase in personnel expenses related to increased headcount to support the business, a $4.1 million increase in stock-based compensation expense, and a $2.8 million increase in legal fees.
Other-Than-Temporary Impairment Loss. The other-than-temporary impairment loss in the nine months ended September 30, 2016 of $5.5 million was related to the decline in value of our investment in Fate Therapeutics.
Interest Income, Net. Interest income, net was $2.0 million and $5.4 million for the three and nine months ended September 30, 2017, compared to $1.5 million and $4.3 million for the three and nine months ended September 30, 2016, respectively. Interest income, net consisted primarily of interest income earned on our marketable securities.
Benefit for Income Taxes. We recorded an income tax benefit of $1.8 million and $4.2 million for the three and nine months ended September 30, 2017, compared to $0.6 million and $9.1 million for the three and nine months ended September 30, 2016, respectively. The income tax benefit for the three and nine months ended September 30, 2017 primarily related to the net loss incurred by our Germany subsidiary. Of the total tax benefit recognized in the nine months ended September 30, 2016, $6.7 million related to the release of valuation allowance on the U.S. deferred tax assets as a result of the acquisition of

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AbVitro, and the remaining amount was primarily related to the net loss incurred by our German subsidiary. We have determined that it is more-likely-than-not that we will realize the benefit of the German losses.
Net Loss Per Share, Basic and Diluted. Upon the closing of the September 2017 follow-on public offering and the concurrent Celgene private placement, the Company sold 7,773,327 shares of common stock. The issuance of these shares will result in a significant increase in the Company’s weighted-average shares outstanding when compared to the comparable prior year period and is expected to continue to impact the year-over-year comparability of the Company’s net loss per share calculations for the next twelve months.
Liquidity and Capital Resources
Sources and Uses of Liquidity
As of September 30, 2017, we had $1.06 billion in cash, cash equivalents and marketable securities. Prior to our entry into the Celgene collaboration, we raised an aggregate of approximately $618.0 million in gross proceeds, through our initial public offering and private placements of our convertible preferred stock which we used to fund our operations. As a result of our entry into the collaboration with Celgene and our initial sale of stock to Celgene, we received $1.0 billion in cash from Celgene in August 2015. Celgene also has the right to purchase additional shares of our common stock, including annual "top-up" rights as described under "Licenses and Third-Party Collaborations" in Part I—Item 1—"Business" of our 2016 Annual Report. If exercised, these purchases will provide us with additional funding for our operations. We received $1.7 million and $47.0 million in the nine months ended September 30, 2017 and 2016, respectively, from Celgene in connection with the sale of our stock pursuant to the exercise by Celgene of its annual top-up right under the Celgene Share Purchase Agreement. In April 2016 we received an opt-in payment of $50.0 million from Celgene upon Celgene’s election to opt-in to our CD19 program. We and Celgene now generally share worldwide development costs for certain CD19 product candidates, which can lead to reimbursements to us from Celgene for certain of our expenses. As of September 30, 2017, we have received an aggregate of $50.2 million in such reimbursements from Celgene. In September 2017, we received $272.4 million in net proceeds from the September 2017 follow-on public offering and $31.1 million in proceeds from Celgene from the concurrent private placement. We also may receive funding from Celgene in the form of option exercise fees or reimbursements for qualified expenses related to the development and commercialization of product candidates in programs that Celgene opts into in the future under the Celgene Collaboration Agreement.
The funding from Celgene and the September 2017 follow-on public offering decreases our need for additional near-term funding, although we may still need to raise additional capital in the future. We believe that our existing cash, cash equivalents, and marketable securities will be sufficient to fund our operations for at least the next 12 months.
We expect to continue to incur substantial additional losses in the future as we expand our research and development activities and build our commercial infrastructure. Until such time, if ever, as we can generate substantial product revenue, and if funding from Celgene is not sufficient for our operations, we may be required to finance our cash needs through a combination of equity or debt financings.
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
 
Nine Months Ended September 30,
 
2017
 
2016
Net cash provided by (used in):
 
 
 
Operating activities
$
(132,169
)
 
$
(120,367
)
Investing activities
70,906

 
51,534

Financing activities
323,243

 
39,907

Effect of exchange rate changes on cash and cash equivalents
(34
)
 
(52
)
Net increase (decrease) in cash and cash equivalents
$
261,946

 
$
(28,978
)
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2017 was $132.2 million compared to $120.4 million for the nine months ended September 30, 2016. The increase of $11.8 million was primarily due to increased costs incurred to manufacture our product candidates, execute our clinical development strategy, and expand our overall research and development capabilities. For the nine months ended September 30, 2017, we received cash of $30.8 million in connection with

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the Celgene Collaboration Agreement for the partial reimbursement by Celgene of research and development costs incurred by us and $37.7 million related to a tenant improvement allowance for our new headquarters facility. For the nine months ended September 30, 2016, we received a $50.0 million upfront payment in connection with the CD19 opt-in, $9.2 million in connection with the Celgene Collaboration Agreement for the partial reimbursement by Celgene of research and development costs incurred by us, and $14.3 million in milestone payments from Novartis.
Investing Activities
Net cash provided by investing activities for the nine months ended September 30, 2017 was $70.9 million compared to $51.5 million for the nine months ended September 30, 2016. The increase of $19.4 million was primarily due to a decline in cash outflows for acquisitions offset by an increase in property and equipment purchases. Included in investing activities for the nine months ended September 30, 2017 was a $56.9 million cash outflow for the purchase of property and equipment, the majority of which related to the build-out of our new headquarters facility. Included in investing activities for the nine months ended September 30, 2016 was net cash paid to acquire AbVitro of $74.6 million.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2017 was $323.2 million compared to $39.9 million for the nine months ended September 30, 2016. The increase of $283.3 million was primarily due to net proceeds of $272.4 million received from the September 2017 follow-on public offering and proceeds of $31.1 million received from the concurrent private placement with Celgene. The increase was offset by lower proceeds received from Celgene's exercise of its annual right to purchase shares of our common stock to "top-up" its ownership in Juno. In the nine months ended September 30, 2017 and 2016 we received proceeds from Celgene of $1.7 million and $47.0 million, respectively, for the exercise of its annual right to purchase shares of our common stock.
Off-Balance Sheet Arrangements
As of September 30, 2017, we did not have any off-balance sheet arrangements or holdings in variable interest entities that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks in the ordinary course of our business, primarily related to interest rate sensitivities, the volatility of our stock price, and foreign exchange rates.
Interest Rate Sensitivity
As of September 30, 2017, we had $605.9 million in marketable securities, largely composed of investment grade short- to intermediate-term fixed income securities. The primary objective of our investment activities is to preserve capital to fund our operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of investments in a variety of securities of high credit quality.
Our marketable securities are subject to interest rate risk and could fall in value if market interest rates increase. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements.
Stock Price Sensitivity
We agreed to make success payments to FHCRC and MSK based on increases in the per share fair market value of our common stock during the term of the agreements payable in cash or publicly-traded equity at our discretion.
As of September 30, 2017, the estimated fair value of the total success payment obligations was approximately $110.6 million. We recognized an expense of $37.2 million and $61.8 million for the three and nine months ended September 30, 2017, respectively, with respect to the success payment obligations. The success payment liabilities on the condensed consolidated balance sheet as of September 30, 2017 were $84.6 million.
Changes in the fair value of our common stock as of each balance date may have a relatively large change in the estimated valuation of the success payment obligations and associated liability and resulting expense or gain. See Note 4 to our condensed consolidated financial statements included herein for a sensitivity analysis showing the impact that a hypothetical change in the value of our common stock would have had on our results for the three months ended September 30, 2017.

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Foreign Currency Sensitivity
The majority of our transactions occur in U.S. dollars. However, we do have certain transactions and future potential milestones including potential contingent consideration payments pursuant to the terms of our Stage acquisition, that are denominated in currencies other than the U.S. dollar, primarily the Euro, and we therefore are subject to foreign exchange risk. Additionally, our German subsidiary operates with the Euro as its functional currency. The fluctuation in the value of the U.S. dollar against the Euro affects the reported amounts of revenues, expenses, assets and liabilities. As we expand our international operations, our exposure to exchange rate fluctuations will increase. A hypothetical 10% change in foreign exchange rates during any of the periods presented would not have had a material impact on our financial statements.
ITEM 4.     CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of September 30, 2017, management, with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2017, the design and operation of our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended September 30, 2017, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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PART II. OTHER INFORMATION
 
ITEM 1.     LEGAL PROCEEDINGS
From time to time, we may become involved in litigation relating to claims arising from the ordinary course of business.
USPTO Proceedings
In August 2015, Kite Pharma, Inc. ("Kite") filed a petition with the U.S. Patent & Trademark Office (the "USPTO") for inter partes review of U.S. Patent No. 7,446,190 (the "'190 Patent"), a patent that we have exclusively licensed from MSK. In February 2016, the USPTO determined to initiate the inter partes review proceedings, in Kite Pharma, Inc. v. Sloan Kettering Institute for Cancer Research, Case IPR2015-01719. As the exclusive licensor, we opted to exercise our right to control the defense of the patent in the proceedings. A hearing was held before the USPTO Patent Trial and Appeal Board on October 20, 2016. On December 16, 2016, the USPTO Patent Trial and Appeal Board issued a final written decision upholding all the claims of this patent. On February 16, 2017, Kite appealed the USPTO Patent Trial and Appeal Board’s final written decision to the U.S. Court of Appeals for the Federal Circuit. Kite filed its opening brief on June 29, 2017. Our opening brief was filed on October 10, 2017, and Kite's Reply Brief is due on December 15, 2017. We will incur expenses associated with the appeal, which expenses may be substantial. If we are unsuccessful in the appeal and the USPTO's decision is reversed, one or more of the patent's claims could be narrowed or invalidated, but we do not expect that this would have a material adverse effect on our business. 
Intellectual Property Litigation
On December 19, 2016, we filed a complaint for declaratory judgment of infringement of U.S. Patent No. 7,446,190 against Kite. The lawsuit was filed in federal district court in Delaware. The complaint alleges that Kite's axicabtagene ciloleucel (KTE-C19) product does or will infringe claims 1-3, 5, 7-9, and 11 of the '190 Patent. We sought, among other things, a declaratory judgment that axicabtagene ciloleucel does or will infringe these claims of the '190 Patent. On February 23, 2017, Kite filed a motion to dismiss the complaint. On March 23, 2017, we filed an opposition to Kite's motion to dismiss. On April 6, 2017, Kite filed a reply in support of its motion to dismiss. The district court granted Kite’s motion to dismiss on June 13, 2017, reasoning that the court lacked subject matter jurisdiction due to the "speculative" nature of FDA approval for Kite’s axicabtagene ciloleucel product.
On September 1, 2017, we filed a complaint against Kite in the federal district court for the Central District of California for infringement and declaratory judgment of infringement of U.S. Patent No. 7,446,190. The complaint alleges that KTE-C19 infringes claims 1-3, 5, 7-9, and 11 of the '190 Patent, based in part on Kite’s manufacturing and stockpiling of KTE-C19 retroviral vector intended for commercial use. We are seeking, among other things, both a judgment that Kite has infringed these claims of the '190 Patent, and a declaratory judgment that Kite does or will infringe the '190 Patent.
 On October 18, 2017, the same day the FDA approved Kite’s Yescarta KTE-C19 product, we filed a second complaint against Kite in the federal district court for the Central District of California. The complaint alleges that Yescarta infringes claims 1-3, 5, 7-9, and 11 of the '190 Patent. We are seeking, among other things, a judgment that Kite has infringed these claims of the '190 Patent based on its commercialization of Yescarta.
Contract Litigation
See Note 11 to our condensed consolidated financial statements included in this report for a description of our contract litigation with City of Hope.
Securities and Derivative Litigation
See Note 11 to our condensed consolidated financial statements included in this report for a description of a putative class action and a purported derivative action involving Juno.

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ITEM 1A.     RISK FACTORS
The following section includes the most significant factors that may adversely affect our business and operations. You should carefully consider the risks and uncertainties described below and all information contained in this report, including our financial statements and the related notes and Part I—Item 2—"Management’s Discussion and Analysis of Financial Condition and Results of Operations," before deciding to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
Risks Related to Our Business and Industry
We are a clinical-stage company and have a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.
We are a clinical-stage biopharmaceutical company that was formed in August 2013. We have no cell-therapy products approved for commercial sale and as of September 30, 2017, had not generated any revenue from such products. We are focused on developing products that use human cells as therapeutic entities and, although there have been significant advances in cell-based immunotherapy, our T cell technologies are new and largely unproven. Our limited operating history, particularly in light of the rapidly evolving cancer immunotherapy field, may make it difficult to evaluate our current business and predict our future performance. Our short history as an operating company makes any assessment of our future success or viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by early-stage companies in rapidly evolving fields. If we do not address these risks successfully, our business will suffer.
We have incurred net losses in each period since our inception and anticipate that we will continue to incur net losses in the future.
We are not profitable and have incurred losses in each period since our inception. For the nine months ended September 30, 2017, we reported a net loss of $301.1 million. As of September 30, 2017, we had an accumulated deficit of $1.13 billion, which includes $51.1 million related to non-cash deemed dividends, $174.4 million in upfront fees to acquire technology, of which $100.5 million was paid in cash and $73.9 million was paid through the issuance of common stock, non-cash expense of $165.8 million associated with the change in the estimated fair value and elapsed service period for our potential and actual success payment liability to FHCRC and MSK, expense of $23.2 million associated with non-cash milestones, non-cash gain of $5.6 million associated with the change in the estimated value of our contingent consideration liabilities, and $10.7 million of expense associated with our convertible preferred stock options. We expect these losses to increase as we continue to incur significant research and development and other expenses related to our ongoing operations, seek regulatory approvals for our product candidates, scale-up manufacturing capabilities and hire additional personnel to support the development of our product candidates and to enhance our operational, financial and information management systems.
A critical aspect of our strategy is to invest significantly in our technology platform to improve the efficacy and safety of our product candidates. Even if we succeed in commercializing one or more of these product candidates, we will continue to incur losses for the foreseeable future relating to our substantial research and development expenditures to develop our technologies. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital. Further, the net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period to period comparison of our results of operations may not be a good indication of our future performance.
We expect to continue to incur significant losses for the foreseeable future. We expect these losses and our cash utilization to increase in the near term as we continue to conduct clinical trials, file additional IND filings for additional product candidates, and conduct research and development of our other product candidates.
We are collaborating with Celgene pursuant to the Celgene Collaboration Agreement, under which we and Celgene will research, develop, and commercialize novel cellular therapy product candidates and other immuno-oncology and immunology therapeutics, including, in particular, CAR and TCR product candidates. Contingent upon the payment of certain upfront payments, Celgene may exercise options to acquire exclusive licenses in territories outside North America and China to certain therapeutics we develop and each party may exercise certain options to co-develop and co-commercialize product candidates developed, or acquired or in-licensed, by the other party. If Celgene does not exercise its options, or if Celgene exercises an option for a program (as it has for our CD19 program) but later the license agreement with Celgene for such program is

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terminated, we will be responsible for the full costs of funding further worldwide development of the relevant product candidates, which would cause our expenses to increase, unless we choose not to pursue further development of such product candidates or we enter into another collaboration for such product candidates, which may not be possible within an acceptable timeframe or on suitable terms. Additionally, either we or Celgene may opt not to fund a study led by the other under an active license agreement, such as the Celgene CD19 License, and if Celgene opts not to fund a Juno-led study, then we would be responsible for the full cost of that study until such time, if ever, that Celgene determines to opt back in to the study at a premium to obtain the right to use data from that study in Celgene's territories. Similarly, our expenses would increase if we exercise an option to co-develop and co-commercialize any product candidate developed, or in-licensed or acquired, by Celgene.
We have never generated any revenue from sales of cell-therapy products and our ability to generate revenue from cell-therapy product sales and become profitable depends significantly on our success in a number of factors.
We have no cell-therapy products approved for commercial sale, have not generated any revenue from cell-therapy product sales, and do not anticipate generating any revenue from cell-therapy product sales until sometime after we have received regulatory approval for the commercial sale of a product candidate. Our ability to generate revenue and achieve profitability depends significantly on our success in many factors, including: 
completing research regarding, and nonclinical and clinical development of, our product candidates;
obtaining regulatory approvals and marketing authorizations for product candidates for which we complete clinical studies;
developing a sustainable and scalable manufacturing process for our product candidates, including establishing and maintaining commercially viable supply relationships with third parties and establishing our own manufacturing capabilities and infrastructure;
launching and commercializing product candidates for which we obtain regulatory approvals and marketing authorizations, either directly or with a collaborator or distributor;
obtaining market acceptance of our product candidates as viable treatment options, and obtaining adequate coverage, reimbursement, and pricing by third-party payors, integrated delivery networks, and government authorities;
addressing any competing technological and market developments;
Celgene’s efforts in its territories to further develop and commercialize the product candidates for which Celgene exercises an option under the Celgene Collaboration Agreement, such as the product candidates in our CD19 program;
Celgene exercising any other of its options under our Celgene Collaboration Agreement;
JW Therapeutics (Shanghai) Co., Ltd’s ability to develop and commercialize product candidates in China;
identifying, assessing, acquiring and/or developing new product candidates;
negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter;
maintaining, protecting, and expanding our portfolio of intellectual property rights, including patents, trade secrets, and know-how; and
attracting, hiring, and retaining qualified personnel.
Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA, or other regulatory agencies, domestic or foreign, to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. If we are successful in obtaining regulatory approvals to market one or more of our product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price for the product, the ability to get reimbursement at any price, and whether we own the commercial rights for that territory. If the number of our addressable disease patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the reasonably accepted population for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if approved. If we are not able to generate revenue from the sale of any approved products, we may never become profitable.

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Our technology platform, including our CAR and high-affinity TCR technologies are new approaches to cancer treatment that present significant challenges.
We have concentrated our research and development efforts on T cell immunotherapy technology, and our future success is highly dependent on the successful development of T cell immunotherapies in general and our CAR and TCR technologies and product candidates in particular. Our approach to cancer treatment aims to alter T cells ex vivo through genetic modification using certain viruses designed to reengineer the T cells to recognize specific proteins on the surface or inside cancer cells. Because this is a new approach to cancer immunotherapy and cancer treatment generally, developing and commercializing our product candidates subjects us to a number of challenges, including: 
obtaining regulatory approval from the FDA and other regulatory authorities that have very limited experience with the commercial development of genetically modified T cell therapies for cancer;
developing and deploying consistent and reliable processes for engineering a patient’s T cells ex vivo and infusing the engineered T cells back into the patient;
conditioning patients with chemotherapy or other non-Juno product treatments in conjunction with delivering each of our products, which may increase the risk of adverse side effects;
educating medical personnel regarding the potential side effect profile of each of our products, such as the potential adverse side effects related to cytokine release or neurotoxicity;
developing processes for the safe administration of these products, including long-term follow-up for all patients who receive our product candidates;
sourcing clinical and, if approved, commercial supplies for the materials used to manufacture and process our product candidates;
developing a manufacturing process and distribution network with a cost of goods that allows for an attractive return on investment;
establishing sales and marketing capabilities after obtaining any regulatory approval to gain market acceptance, and obtaining adequate coverage, reimbursement, and pricing by third-party payors and government authorities; and
developing therapies for types of cancers beyond those addressed by our current product candidates.
We cannot be sure that our T cell immunotherapy technologies will yield satisfactory products that are safe and effective, scalable, or profitable.
Additionally, because our technology involves the genetic modification of patient cells ex vivo using a virus, we are subject to many of the challenges and risks that gene therapies face, including: 
Regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in the future. To date, only three products that involve the genetic modification of patient cells has been approved in the United States and only one has been approved in the European Union ("EU").
Genetically modified products in the event of improper insertion of a gene sequence into a patient’s chromosome could lead to lymphoma, leukemia or other cancers, or other aberrantly functioning cells.
Although our viral vectors are not able to replicate, there is a risk with the use of retroviral or lentiviral vectors that they could lead to new or reactivated pathogenic strains of virus or other infectious diseases.
The FDA recommends a 15 year follow-up observation period for all patients who receive treatment using gene therapies, and we may need to adopt such an observation period for our product candidates.
Clinical trials using genetically modified cells conducted at institutions that receive funding for recombinant DNA research from the NIH, are subject to review by the Recombinant DNA Advisory Committee ("RAC"). Although the FDA decides whether individual protocols may proceed, the RAC review process can impede the initiation of a clinical trial, even if the FDA has reviewed the study and approved its initiation.
Moreover, public perception of therapy safety issues, including adoption of new therapeutics or novel approaches to treatment, may adversely influence the willingness of subjects to participate in clinical trials, or if approved, of physicians to subscribe to the novel treatment mechanics. Physicians, hospitals and third-party payors often are slow to adopt new products, technologies

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and treatment practices that require additional upfront costs and training. Physicians may not be willing to undergo training to adopt this novel and personalized therapy, may decide the therapy is too complex to adopt without appropriate training and may choose not to administer the therapy. Based on these and other factors, hospitals and payors may decide that the benefits of this new therapy do not or will not outweigh its costs.
Our near-term ability to generate product revenue is dependent on the success of one or more of our CD19 product candidates, each of which are in clinical development and will require significant additional clinical testing before we can seek regulatory approval and begin commercial sales.
Our near-term ability to generate product revenue is highly dependent on our ability to obtain regulatory approval of and successfully commercialize one or more of our CD19 product candidates. Our lead product candidate, JCAR017, is in clinical development, has been tested in a relatively small number of patients, and will require additional clinical and nonclinical development, regulatory review and approval in each jurisdiction in which we intend to market the product, substantial investment, access to sufficient commercial manufacturing capacity, and significant marketing efforts before we can generate any revenue from product sales. Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical studies to demonstrate the safety, purity, and potency of the product candidates in humans. We cannot be certain that any of our product candidates will be successful in clinical studies and they may not receive regulatory approval even if they are successful in clinical studies.
In addition, because our product candidates are based on similar technology, if any of our product candidates encounter safety or efficacy problems, developmental delays, regulatory issues, reagent supply issues, or other problems, our development plans for the affected product candidate and some or all of our other product candidates could be significantly harmed, which would have a material adverse effect on our business. Because JCAR017 is the backbone of our development strategy, a setback for JCAR017 could have a relatively large impact on our plans and business. Further, competitors who are developing products with similar technology may experience problems with their products that could identify problems that would potentially harm our business.
Prior to the Juno-sponsored Phase I trial of JCAR017 and Phase II clinical trial of JCAR015 that began in 2015, third parties had sponsored and conducted all clinical trials of our CD19 product candidates and other product candidates, and our ability to influence the design and conduct of such trials has been limited. We have assumed control over the future clinical and regulatory development of JCAR017 in NHL, and may do so for additional indications or other product candidates, which will entail additional expenses and may be subject to delay. Any failure by a third party to meet its obligations with respect to the clinical and regulatory development of our product candidates may delay or impair our ability to obtain regulatory approval for our products and result in liability for our company.
Prior to the Juno-sponsored Phase I clinical trial of JCAR017 and the Phase II clinical trial of JCAR015, both of which began in 2015, we had not sponsored any clinical trials relating to our CD19 product candidates or other product candidates. Instead, faculty members at our third-party research institution collaborators, or those institutions themselves, sponsored all clinical trials relating to these product candidates, in each case under their own INDs. We have now assumed control of the U.S. clinical and regulatory development of JCAR017 in NHL for future clinical trials. We may assume control over the clinical and regulatory development of other product candidates in the future, in which case we will need to obtain sponsorship of the INDs or file new Juno-sponsored INDs. Failure to obtain, or delays in obtaining, sponsorship of INDs or in filing new Juno-sponsored INDs for these or any other product candidates we determine to advance could negatively affect the timing of our potential future clinical trials. Any such impacts on timing could increase research and development costs and could delay or prevent obtaining regulatory approval for our product candidates, either of which could have a material adverse effect on our business.
Further, even in the event that the IND sponsorship is or has been obtained for existing and new INDs, we did not control the design or conduct of the previous trials. It is possible that the FDA will not accept these previous trials as providing adequate support for future clinical trials, whether controlled by us or third parties, for any of one or more reasons, including the safety, purity, and potency of the product candidate, the degree of product characterization, elements of the design or execution of the previous trials or safety concerns, or other trial results. We may also be subject to liabilities arising from any treatment-related injuries or adverse effects in patients enrolled in these previous trials. As a result, we may be subject to unforeseen third-party claims and delays in our potential future clinical trials. We may also be required to repeat in whole or in part clinical trials previously conducted by our third-party research institution collaborators, which will be expensive and delay the submission and licensure or other regulatory approvals with respect to any of our product candidates. Any such delay or liability could have a material adverse effect on our business.
Although we have assumed control of the overall clinical and regulatory development JCAR017 in NHL going forward, we expect to be dependent on our contractual arrangements with collaborators for certain of our JCAR017 trials and for ongoing

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and planned trials for our other product candidates until we determine to assume control of the clinical and regulatory development of those candidates. Such arrangements provide us certain information rights with respect to certain previous, planned, or ongoing trials of our product candidates, including access to and the ability to use and reference the data, including for our own regulatory filings, resulting from such trials. Even after we assume control of the overall clinical and regulatory development of a product candidate, including JCAR017, we will still remain dependent on such contractual data rights for use in our clinical and regulatory development activities. If these obligations are breached by our collaborators, or if the data, or our data rights, prove to be inadequate compared to the first-hand knowledge we might have gained had the completed trials been Juno-sponsored trials, then our ability to design and conduct our Juno-sponsored clinical trials may be adversely affected. Additionally, the FDA may disagree with the sufficiency of the preclinical, manufacturing, or clinical data generated by these prior collaborator-sponsored trials, or our interpretation of preclinical, manufacturing, or clinical data from these clinical trials. If so, the FDA may require us to obtain and submit additional preclinical, manufacturing, or clinical data before we may begin our planned trials and/or may not accept such additional data as adequate to begin our planned trials.
Additionally, we may remain dependent on our third-party research institution collaborators for other support services in connection with our Juno-sponsored clinical trials.
We may encounter substantial delays in our clinical trials, or may not be able to conduct our trials on the timelines we expect.
Clinical testing is expensive, time consuming, and subject to uncertainty. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. We expect that the early clinical work performed by our third-party research institution collaborators will help support the filing with the FDA of multiple INDs for our product candidates in the next five years. However, we cannot be sure that we will be able to submit INDs at this rate, and we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin. Moreover, even if these trials begin, issues may arise that could suspend or terminate such clinical trials. A failure of one or more clinical studies can occur at any stage of testing, and our future clinical studies may not be successful. Events that may prevent successful or timely completion of clinical development include: 
inability to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation of clinical studies;
delays in sufficiently developing, characterizing, or controlling a manufacturing process suitable for advanced clinical trials;
delays in developing suitable assays for screening patients for eligibility for trials with respect to certain product candidates;
delays in reaching a consensus with regulatory agencies on study design;
the FDA may not allow us to use the clinical trial data from a research institution to support an IND if we cannot demonstrate the comparability of our product candidates with the product candidate used by the relevant research institution in its clinical studies;
delays in reaching agreement on acceptable terms with prospective CROs and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study sites;
delays in obtaining required institutional review board ("IRB") approval at each clinical study site;
imposition of a temporary or permanent clinical hold by regulatory agencies for a number of reasons, including after review of an IND application or amendment, or equivalent application or amendment; as a result of a new safety finding that presents unreasonable risk to clinical trial participants; a negative finding from an inspection of our clinical study operations or study sites; developments on trials conducted by competitors for related technology that raises FDA concerns about risk to patients of the technology broadly; or if FDA finds that the investigational protocol or plan is clearly deficient to meet its stated objectives;
delays in recruiting suitable patients to participate in our clinical studies;
difficulty collaborating with patient groups and investigators;
failure by our CROs, other third parties, or us to adhere to clinical study requirements;

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failure to perform in accordance with the FDA’s good clinical practice ("GCP") requirements, or applicable regulatory guidelines in other countries;
transfer of manufacturing processes to Celgene or any other commercialization partner for the manufacture of product candidates in trials outside of the United States;
delays in having patients complete participation in a study or return for post-treatment follow-up;
patients dropping out of a study;
occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;
changes in the standard of care on which a clinical development plan was based, which may require new or additional trials;
the cost of clinical studies of our product candidates being greater than we anticipate;
clinical studies of our product candidates producing negative or inconclusive results, which may result in our deciding, or regulators requiring us, to conduct additional clinical studies or abandon product development programs;
transfer of manufacturing processes from our academic collaborators to larger-scale facilities operated by either a CMO or by us, and delays or failure by our CMOs or us to make any necessary changes to such manufacturing process;
delays or failure to secure supply agreements with suitable reagent suppliers, or any failures by suppliers to meet our quantity or quality requirements for necessary reagents; and
delays in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of our product candidates for use in clinical studies or the inability to do any of the foregoing.
Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may be required to or we may elect to conduct additional studies to bridge our modified product candidates to earlier versions. Clinical study delays could also shorten any periods during which our products have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
We have entered into collaborations, including our Celgene collaboration, and strategic alliances, and may enter into additional arrangements like these in the future, and we may not realize the anticipated benefits of such collaborations or alliances.
Research and development collaborations, including those we have entered into with Celgene, Fate Therapeutics, Editas, and MedImmune, are subject to numerous risks, which may include the following: 
collaborators have significant discretion in determining the efforts and resources that they will apply to a collaboration, and may not commit sufficient efforts and resources, or may misapply those efforts and resources;
collaborators may not pursue development and commercialization of collaboration product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results or changes in their strategic focus;
collaborators may delay, provide insufficient resources to, or modify or stop clinical trials for collaboration product candidates;
collaborators could develop or acquire products outside of the collaboration that compete directly or indirectly with our products or product candidates (for instance, Celgene and bluebird bio are collaborating on an anti-BCMA CAR T product candidate);
collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability;

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disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization of our product candidates, or that result in costly litigation or arbitration that diverts management attention and resources;
collaborations may be terminated and, if terminated, may result in a need for additional capital and personnel to pursue further development or commercialization of the applicable product candidates; and
collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in such cases, we may not have the exclusive right to commercialize such intellectual property.
In particular, for product candidates in our CD19 program and product candidates from any other programs for which Celgene opts to exercise its options under the Celgene Collaboration Agreement, we may have limited influence or control over their approaches to development and commercialization in the territories in which they lead development and commercialization, including the choice of which product candidates Celgene determines to advance in those territories. Although we will still lead development and commercialization activities in North America and China for our product candidates arising from our CD19 program and any other program for which Celgene exercises an option, Celgene’s development and commercialization activities in the territories where it is the lead party may adversely impact our own efforts in North America and China and lead to changes to clinical and regulatory development strategy for associated product candidates that may impact development timelines. Celgene may also assist us with conducting some of our clinical trials in North America, which will cause us to be dependent in part on Celgene's efforts for our development activities in North America. Celgene will also require some level of assistance from us with respect to product candidates from the CD19 program and product candidates from any other programs it opts into, and this assistance could be burdensome on our organization and resources and disrupt our own development and commercialization activities. Celgene will also be subject to many of the same risks that are set forth in this "Risk Factors" section pertaining to operations and government regulation, which may adversely affect Celgene’s ability to develop and commercialize collaboration products.
In early 2016, we and WuXi AppTec formed a new company, JW Therapeutics (Shanghai) Co., Ltd, to develop and commercialize cell-based immunotherapies for patients with hematologic and solid organ cancers in China. We have limited control over JW Therapeutics (Shanghai) Co., Ltd and its affiliated companies and so we will be subject to many of the same risks set forth above with respect to collaborations. JW Therapeutics (Shanghai) Co., Ltd and its affiliated companies will also be subject to many of the same risks that are set forth in this "Risk Factors" section pertaining to operations, government regulation, and intellectual property, which may adversely affect JW Therapeutics (Shanghai) Co., Ltd and its affiliated companies' ability to develop and commercialize products.
We may form or seek further strategic alliances, create joint ventures or collaborations, or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may develop. Such alliances will be subject to many of the risks set forth above. Moreover, any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders, or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex.
As a result of these risks, we may not be able to realize the benefit of our existing collaborations or any future collaborations or licensing agreements we may enter into. Any delays in entering into new collaborations or strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates in certain geographies, which could harm our business prospects, financial condition, and results of operations.
The FDA or comparable foreign regulatory authorities may disagree with our regulatory plans, including our plans to seek accelerated approval, and we may fail to obtain regulatory approval of our product candidates.
We are conducting a Phase I trial in adult r/r NHL with JCAR017, which we refer to as the TRANSCEND trial, and are currently enrolling the cohort that we believe may support registration , and we plan to conduct additional clinical trials in other B cell malignancies, including r/r CLL, adult r/r ALL, and pediatric r/r ALL, using this product candidate or a next generation product candidate. If the results of these trials are sufficiently compelling, we intend to discuss with the FDA the potential for filing biologics license applications ("BLAs") for accelerated approval of the associated product candidates as treatments for patients who are refractory to currently approved treatments in these indications.
The FDA generally requires a BLA to be supported by two adequate and well-controlled Phase III studies or one large and robust, well-controlled Phase III study in the patient population being studied that provides substantial evidence that a biologic is safe, pure and potent. Phase III clinical studies typically involve hundreds of patients, have significant costs and take years to complete. However, product candidates studied for their safety and effectiveness in treating serious or life-threatening illnesses

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and that provide meaningful therapeutic benefit over existing treatments may be eligible for accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA may require a sponsor of a drug or biologic receiving accelerated approval to perform post-marketing studies to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint, and the drug or biologic may be subject to withdrawal procedures by the FDA that are more accelerated than those available for regular approvals. We believe our accelerated approval strategy is warranted given the currently limited alternative therapies for patients with r/r NHL, r/r CLL, r/r ALL, and r/r multiple myeloma but the FDA may not agree or competing or alternative therapies may enter the market that cause the FDA to determine that the accelerated approval framework is no longer appropriate in those indications. The FDA may ultimately require one or multiple Phase III clinical trials prior to approval, particularly because our product candidates are novel and personalized treatments.
As part of its marketing authorization process, the European Medicines Agency ("EMA") may grant marketing authorizations on the basis of less complete data than is normally required, when, for certain categories of medicinal products, doing so may meet unmet medical needs of patients and serve the interest of public health. In such cases, it is possible for the Committee for Medicinal Products for Human Use ("CHMP") to recommend the granting of a marketing authorization, subject to certain specific obligations to be reviewed annually, which is referred to as a conditional marketing authorization. This may apply to medicinal products for human use that fall under the jurisdiction of the EMA, including those that aim at the treatment, the prevention, or the medical diagnosis of seriously debilitating diseases or life-threatening diseases and those designated as orphan medicinal products.
A conditional marketing authorization may be granted when the CHMP finds that, although comprehensive clinical data referring to the safety and efficacy of the medicinal product have not been supplied, all the following requirements are met: 
the risk-benefit balance of the medicinal product is positive;
it is likely that the applicant will be in a position to provide the comprehensive clinical data;
unmet medical needs will be fulfilled; and
the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required.
The granting of a conditional marketing authorization is restricted to situations in which only the clinical part of the application is not yet fully complete. Incomplete nonclinical or quality data may only be accepted if duly justified and only in the case of a product intended to be used in emergency situations in response to public-health threats.
Conditional marketing authorizations are valid for one year, on a renewable basis. The holder will be required to complete ongoing studies or to conduct new studies with a view to confirming that the benefit-risk balance is positive. In addition, specific obligations may be imposed in relation to the collection of pharmacovigilance data.
The granting of a conditional marketing authorization will allow medicines to reach patients with unmet medical needs earlier than might otherwise be the case and will ensure that additional data on a product are generated, submitted, assessed and acted upon. Although we may seek a conditional marketing authorization for one or more of our product candidates by the EMA, the EMA or CHMP may ultimately not agree that the requirements for such conditional marketing authorization have been satisfied. Even if conditional marketing authorization is granted, we cannot guarantee that the EMA or CHMP will renew the authorization annually. Celgene may seek conditional marketing approval in the EU for our CD19 product candidates.
Our clinical trial results may also not support approval, whether accelerated approval, conditional marketing authorizations, or standard approval procedures. The results of preclinical and clinical studies may not be predictive of the results of later-stage clinical trials, and product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through preclinical studies and initial clinical trials. In addition, our product candidates could fail to receive regulatory approval for many reasons, including the following: 
the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which we seek approval;

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we may be unable to demonstrate that our product candidates’ risk-benefit ratios for their proposed indications are acceptable;
the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;
we may be unable to demonstrate that the clinical and other benefits of our product candidates outweigh their safety risks;
the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
the data collected from clinical trials of our product candidates may not be sufficient to the satisfaction of the FDA or comparable foreign regulatory authorities to support the submission of a BLA or other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;
the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, our own manufacturing facilities, or a third-party manufacturer’s facilities with which we contract for clinical and commercial supplies; and
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
Further, failure to obtain approval for any of the above reasons may be made more likely by the fact that the FDA and other regulatory authorities have very limited experience with commercial development of genetically engineered T cell therapies for cancer. Failure to obtain regulatory approval to market any of our product candidates would significantly harm our business, results of operations, and prospects.
Our clinical trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which would prevent or delay regulatory approval and commercialization.
The clinical trials and manufacturing of our product candidates are, and the manufacturing and marketing of our products will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to test and market our product candidates. Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication. In particular, because our product candidates are subject to regulation as biological drug products, we will need to demonstrate that they are safe, pure, and potent for use in their target indications. Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use. The risk/benefit profile required for product licensure will vary depending on these factors and may include not only the ability to show tumor shrinkage, but also adequate duration of response, a delay in the progression of the disease, and/or an improvement in survival, and an acceptable safety profile. For example, response rates from the use of our product candidates may not be sufficient to obtain regulatory approval unless we can also show an adequate duration of response. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Similarly, the final results from a clinical trial may not be as good as interim results reported earlier in the same clinical trial. Additionally, the results of studies in one set of patients or line of treatment may not be predictive of those obtained in another. We expect there may be greater variability in results for products processed and administered on a patient-by-patient basis, as anticipated for our product candidates, than for "off-the-shelf" products, like many other drugs. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that begin clinical trials are never approved by regulatory authorities for commercialization.
Data from studies conducted by the third-party research institutions that are our collaboration partners, such as FHCRC, MSK, SCRI, and the NCI, should not be relied upon as evidence that later or larger-scale clinical trials will succeed. Some future trials may have different patient populations than current studies and will test our product candidates in different indications, among other differences. In addition, our manufacturing processes for our CD19 product candidates include what we believe to be process improvements that are not part of the production processes that have been used in the clinical trials conducted by the

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research institutions. Accordingly, our results with our CD19 product candidates may not be consistent with the results of the clinical trials conducted by our research institute collaborators.
In addition, even if such trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.
Our product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential, or result in significant negative consequences.
As with most biological drug products, use of our product candidates could be associated with side effects or adverse events which can vary in severity from minor reactions to death and in frequency from infrequent to prevalent. It is not uncommon for there to be treatment-related deaths in clinical trials in advanced cancer patients, and even some standard of care treatments, such as HSCT, are associated with a level of treatment-related mortality. Undesirable side effects or unacceptable toxicities caused by our product candidates could cause us or regulatory authorities to interrupt, delay, or halt clinical trials. As of a data cutoff date of August 11, 2017 for JCAR015 and August 10, 2017 for JCAR017, treatment-emergent adverse events, whether or not treatment related, occurring in at least 25% of patients across trials conducted under a Juno-sponsored IND include cytokine release syndrome ("CRS"), nausea, diarrhea, vomiting, decreased appetite, fatigue, headache, hypokalemia, neutropenia, anemia, thrombocytopenia, and events of neurotoxicity, including confusional state, aphasia, encephalopathy, tremor, muscular weakness, and somnolence. Similar adverse events have been observed in trials conducted by our collaborators. Characteristic symptoms of CRS include fever, low blood pressure, nausea, difficulty breathing, and oxygen deficiency. Some of these treatment-emergent adverse events from our or our collaborators' clinical trials have required admission to the intensive care unit and, in some severe cases, have resulted in death. Fatal events of cerebral edema have also been observed.
Undesirable side effects or deaths in clinical trials with our product candidates may cause the FDA or comparable foreign regulatory authorities to place a clinical hold on the associated clinical trials, to require additional studies, or otherwise to delay or deny approval of our product candidates for any or all targeted indications. For instance, in July 2016, the FDA placed our JCAR015 Phase II trial in r/r ALL on clinical hold after we observed an increased incidence of severe neurotoxicity, including two patients who died in late June 2016 from cerebral edema. After a protocol amendment, the clinical hold was removed a few days later and the trial resumed. However, in November 2016, the FDA again placed our trial on clinical hold after the occurrence of two more deaths from cerebral edema in the trial. Following the November 2016 events, we conducted an investigation into the toxicity and identified multiple factors that may have contributed to this increased risk, including patient specific factors, the conditioning chemotherapy patients received, and factors related to the product, but we cannot know that we have identified the root causes of the toxicity to sufficiently prevent its occurrence in the future. We subsequently determined to discontinue Juno development of JCAR015. We cannot provide any assurances that there will not be further treatment-related severe adverse events or deaths with other product candidates, from cerebral edema or otherwise, that the trials for those other product candidates will not be placed on clinical hold in the future, or that patient recruitment for trials with our other product candidates will not be adversely impacted by the events with JCAR015, any of which could materially and adversely affect our business and prospects.
Negative side effects could also result in a more restrictive label, or a boxed warning on the label, for any product that is approved. We may also be required by the FDA to create a risk evaluation and mitigation strategy ("REMS") plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers, and/or other elements to assure safe use, such as restricted distribution methods and patient registries.
Treatment-related side effects or clinical holds could also affect patient recruitment or the ability of enrolled subjects to complete the trial, or could result in potential product liability claims. In addition, these side effects may not be appropriately or timely recognized or managed by the treating medical staff, particularly outside of the research institutions that collaborate with us, as toxicities resulting from personalized T cell therapy are not normally encountered in the general patient population and by medical personnel. We expect to have to train medical personnel using our product candidates to understand their side effect profiles, both for our planned clinical trials and upon any commercialization of any product candidates. Inadequate training in recognizing or managing the potential side effects of our product candidates could result in adverse effects to patients, including death. Any of these occurrences may materially and adversely harm our business, financial condition and prospects.

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Undesirable side effects or deaths in clinical trials conducted by others in the engineered T cell therapy field may also adversely impact our own prospects with the FDA or comparable foreign regulatory authorities and may adversely impact our own patient recruitment activities if enthusiasm for the prospects of engineered T cell therapy generally is diminished.
Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, including during any long-term follow-up observation period recommended or required for patients who receive treatment using our products, a number of potentially significant negative consequences could result, including: 
regulatory authorities may withdraw approvals of such product or we may voluntarily halt the sale of such product;
regulatory authorities may require additional warnings on the label;
we may be required by the FDA to create a new REMS plan;
we could be sued and held liable for harm caused to patients; and
our reputation may suffer.
Any of the foregoing could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations, and prospects.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion. We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons, including: 
the size and nature of the patient population;
the patient eligibility criteria defined in the protocol;
the size of the study population required for analysis of the trial’s primary endpoints;
the proximity of patients to trial sites;
the design of the trial;
our ability to recruit clinical trial investigators with the appropriate competencies and experience;
competing clinical trials for similar therapies or other new therapeutics not involving T cell based immunotherapy;
clinicians' and patients' perceptions as to the potential advantages and side effects of the product candidate being studied in relation to other available therapies, including any new drugs or treatments that may be approved for the indications we are investigating;
our ability to obtain and maintain patient consents; and
the risk that patients enrolled in clinical trials will not complete a clinical trial.
In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Because the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites. Moreover, because our product candidates represent a departure from more commonly used methods for cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy and hematopoietic cell transplantation, rather than enroll patients in any future clinical trial.
Even if we are able to enroll a sufficient number of patients in our clinical trials, delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates.

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Clinical trials are expensive, time-consuming and difficult to design and implement, and our clinical trial costs may be higher than for more conventional therapeutic technologies or drug products.
Clinical trials are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Because our product candidates are based on new technologies and manufactured on a patient-by-patient basis, we expect that they will require extensive research and development and have substantial manufacturing costs. In addition, costs to treat patients with r/r cancer and to treat potential side effects that may result from our product candidates can be significant. Some clinical trial sites may not bill, or obtain coverage from, Medicare, Medicaid, or other third-party payors for some or all of these costs for patients enrolled in our clinical trials, and we may be required by those trial sites to pay such costs. Accordingly, our clinical trial costs are likely to be significantly higher per patient than those of more conventional therapeutic technologies or drug products. In addition, our proposed personalized product candidates involve several complex and costly manufacturing and processing steps, the costs of which will be borne by us. Depending on the number of patients we ultimately enroll in our trials, and the number of trials we may need to conduct, our overall clinical trial costs may be higher than for more conventional treatments.
Research and development of biopharmaceutical products is inherently risky. We may not be successful in our efforts to use and enhance our technology platform and CAR and TCR technologies to create a pipeline of product candidates and develop commercially successful products, or we may expend our limited resources on programs that do not yield a successful product candidate and fail to capitalize on product candidates or diseases that may be more profitable or for which there is a greater likelihood of success. If we fail to develop additional product candidates, our commercial opportunity will be limited.
We and our collaborators are simultaneously pursuing clinical development of multiple product candidates developed employing our CAR and TCR technologies. We are at an early stage of development and our technology platform has not yet led, and may never lead, to approved or commercially successful products.
Even if we are successful in continuing to build our pipeline, obtaining regulatory approvals and commercializing additional product candidates may require substantial additional funding and are prone to the risks of failure inherent in medical product development.
Investment in biopharmaceutical product development involves significant risk that any potential product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval, and become commercially viable. We cannot provide you any assurance that we will be able to successfully advance any of these additional product candidates through the development process. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development or commercialization for many reasons, including the following: 
our platform may not be successful in identifying additional product candidates;
we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;
our product candidates may not succeed in preclinical or clinical testing;
a product candidate may on further study be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;
competitors may develop alternatives that render our product candidates obsolete or less attractive;
product candidates we develop may nevertheless be covered by third parties' patents or other exclusive rights;
the market for a product candidate may change during our program so that the continued development of that product candidate is no longer reasonable;
a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors, if applicable.
If any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify, discover, develop, or commercialize additional product candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations.

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Even if we receive FDA approval to market our product candidates, whether for the treatment of cancers or other diseases, we cannot assure you that any such product candidates will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. Further, because of our limited financial and managerial resources, we are required to focus our research programs on certain product candidates and on specific diseases. As a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required to forgo or delay pursuit of opportunities with other product candidates or other diseases that may later prove to have greater commercial potential, or relinquish valuable rights to such product candidates through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to retain sole development and commercialization rights. For additional information regarding the factors that will affect our ability to achieve revenue from product sales, see the risk factor above "—We have never generated any revenue from sales of cell-therapy products and our ability to generate revenue from cell-therapy product sales and become profitable depends significantly on our success in a number of factors."
Our product candidates are biologics and the manufacture of our product candidates is complex and we may encounter difficulties in production, particularly with respect to process development or scaling-out of our manufacturing capabilities. If we, Celgene, or any of our third-party manufacturers encounter such difficulties, our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.
Our product candidates are biologics and the process of manufacturing our products is complex, highly-regulated and subject to multiple risks. The manufacture of our product candidates involves complex processes, including harvesting T cells from patients, genetically modifying the T cells ex vivo, multiplying the T cells to obtain the desired dose, and ultimately infusing the T cells back into a patient’s body. As a result of the complexities, the cost to manufacture biologics in general, and our genetically modified cell product candidates in particular, is generally higher than traditional small molecule chemical compounds, and the manufacturing process is less reliable and is more difficult to reproduce. Our manufacturing process will be susceptible to product loss or failure, or product variation that may adversely impact patient outcomes, due to logistical issues associated with the collection of white blood cells, or starting material, from the patient, shipping such material to the manufacturing site, shipping the final product back to the patient, and infusing the patient with the product, manufacturing issues or different product characteristics resulting from the differences in patient starting materials, variations between reagent lots, interruptions in the manufacturing process, contamination, equipment or reagent failure, improper installation or operation of equipment, vendor or operator error, inconsistency in cell growth, and variability in product characteristics. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects, and other supply disruptions. If for any reason we lose a patient’s starting material or later-developed product at any point in the process, the manufacturing process for that patient will need to be restarted and the resulting delay may adversely affect that patient’s outcome. If microbial, viral, or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Because our product candidates are manufactured for each particular patient, we will be required to maintain a chain of identity with respect to materials as they move from the patient to the manufacturing facility, through the manufacturing process, and back to the patient. Maintaining such a chain of identity is difficult and complex, and failure to do so could result in adverse patient outcomes, loss of product, or regulatory action including withdrawal of our products from the market, if licensed.
Historically, our product candidates have been manufactured using unoptimized processes by our third-party research institution collaborators that we do not intend to use for more advanced clinical trials or commercialization. Although we are working to develop commercially viable processes, including for JCAR017, doing so is a difficult and uncertain task, and there are risks associated with scaling to the level required for advanced clinical trials or commercialization, including, among others, cost overruns, potential problems with process scale-out, process reproducibility, stability issues, lot consistency, and timely availability of reagents or raw materials. We will also need to build out and implement electronic systems to support scale and reduce human error, which may be difficult to do in a timely manner. As a result of these challenges, we may experience delays in our clinical development and/or commercialization plans. We may ultimately be unable to reduce the cost of goods for our product candidates to levels that will allow for an attractive return on investment if and when those product candidates are commercialized.
We also may make changes to our manufacturing process at various points during development, and even after commercialization, for various reasons, such as controlling costs, achieving scale, decreasing processing time, increasing manufacturing success rate, or other reasons. During the course of the TRANSCEND trial, we have made changes to the JCAR017 manufacturing process to support commercialization. Changes to our manufacturing process carry the risk that they will not achieve their intended objectives, and any of these changes could cause our product candidates to perform differently and affect the results of our ongoing clinical trials, future clinical trials, or the performance of the product once commercialized. In some circumstances, changes in the manufacturing process may require us to perform ex vivo comparability studies and to collect additional data from patients prior to undertaking more advanced clinical trials. For instance, changes in

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our process during the course of clinical development may require us to show the comparability of the product used in earlier clinical phases or at earlier portions of a trial to the product used in later clinical phases or later portions of the trial. We may also make further changes to our manufacturing process before or after commercialization, and such changes may require us to show the comparability of the resulting product to the product used in the clinical trials using earlier processes. We may be required to collect additional clinical data from any modified process prior to obtaining marketing approval for the product candidate produced with such modified process. If clinical data are not ultimately comparable to that seen in the earlier trials or earlier in the same trial in terms of safety or efficacy, we may be required to make further changes to our process and/or undertake additional clinical testing, either of which could significantly delay the clinical development or commercialization of the associated product candidate.
We expect our manufacturing strategy will involve the use of our manufacturing facility in Bothell, Washington, and potentially additional Juno-operated manufacturing facilities or one or more CMOs, to manufacture our product candidates. We also plan to manufacture certain of the reagents used for making our product candidates ourselves. We expect that development of our own manufacturing capabilities, as well as manufacturing some of our own reagents, will provide us with enhanced control of material supply for both clinical trials and the commercial market, enable the more rapid implementation of process changes, and allow for better long-term margins. However, we have limited experience as a company manufacturing product candidates for use in the clinic and no experience as a company manufacturing product candidates for commercial supply, and we have only limited experience (through our German subsidiary) in manufacturing reagents. We may never be successful in manufacturing product candidates or reagents in sufficient quantities or with sufficient quality for clinical or commercial use. We may establish multiple manufacturing facilities as we expand our commercial footprint to multiple geographies, which may lead to regulatory delays or prove costly.
Even if we are successful in developing our manufacturing capabilities sufficient for clinical and commercial supply, our manufacturing capabilities could be affected by cost-overruns, unexpected delays, equipment failures, labor shortages, operator error, natural disasters, availability of qualified personnel, difficulties with logistics and shipping, problems regarding yields or stability of product, contamination or other quality control issues, power failures, and numerous other factors that could prevent us from realizing the intended benefits of our manufacturing strategy and have a material adverse effect on our business.
Furthermore, if contaminants are discovered in our supply of our product candidates or in our manufacturing facilities or those of our CMOs, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any stability failures or other issues relating to the manufacture of our product candidates will not occur in the future. Additionally, we and our CMOs may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If we or our CMOs were to encounter any of these difficulties, our ability to provide our product candidate to patients in clinical trials, or to provide product for treatment of patients once approved, would be jeopardized.
In addition, the manufacturing process for any products that we may develop is subject to FDA and foreign regulatory authority approval process, and we will need to meet, and our CMOs will need to meet, all applicable FDA and foreign regulatory authority requirements on an ongoing basis. If we or our CMOs are unable to reliably produce products to specifications acceptable to the FDA or other regulatory authorities, we may not obtain or maintain the approvals we need to commercialize such products. Even if we obtain regulatory approval for any of our product candidates, there is no assurance that either we or our CMOs will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product, or to meet potential future demand. Any of these challenges could delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidate, impair commercialization efforts, increase our cost of goods, and have an adverse effect on our business, financial condition, results of operations and growth prospects.
We also will need to assist Celgene with the transfer of our manufacturing processes for our CD19 product candi